Global Business Responsibility Resource Center: Codes of Conduct

Based on "Codes of Conduct" by Business for Social Responsibility, (c) 2006 www.bsr.org.



INTRODUCTION
BUSINESS IMPORTANCE
RECENT DEVELOPMENTS
EXTERNAL STANDARDS
IMPLEMENTATION STEPS
LEADERSHIP EXAMPLES
SAMPLE POLICIES
AWARDS/RECOGNITION PROGRAMS






INTRODUCTION
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As the globalization of the economy has accelerated, so too have concerns from consumers, investors, and human rights, labor, religious and other groups regarding the conditions under which products for export to the US are made, extracted, grown or processed. To address these issues, many US companies have adopted codes of conduct to influence the practices of their global business partners, e.g. joint venture partners, licensees, and suppliers.

Codes of conduct typically set guidelines on issues including child labor, forced labor, wages, benefits, working hours, disciplinary practices, freedom of association, and health and safety. They also sometimes incorporate policies regarding legal compliance, ethics, environmental practices and community investments.

BUSINESS IMPORTANCE
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Companies have found that adopting and enforcing a code of conduct can yield the following practical business benefits:

Strengthened legal compliance : Codes are designed for implementation in locations where local laws either often go unenforced, or fall short of internationally-accepted principles. A code helps promote business partners' compliance with both.

Enhanced corporate reputation/brand image : A company's reputation and the value of its brand are among its most valuable assets. Increasingly, companies are being held accountable for the policies and practices of their entire supply chain. Codes of conduct can help protect and enhance reputation by aligning business partner behavior with company norms.

Reduced risk of negative publicity, boycotts, etc.: Allegations of "sweatshop" conditions in suppliers' factories or exploitative conditions in agriculture can result in significant adverse publicity, consumer boycotts, shareholder resolutions and other undesirable impacts. Developing and implementing a code of conduct can help reduce the gravity of harm should problematic incidents occur.

Increased quality and productivity : Many companies believe the rights laid out in codes of conduct help create a climate of health, security and trust that can contribute to higher standards of quality and greater productivity, for example, as a result of lower employee turnover.

Improved business relationships : Codes can serve as clear guiding principles for choosing, evaluating and sustaining relationships with business who are more likely to be better long-term partners.

RECENT DEVELOPMENTS
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Increased media attention on overseas labor practices, a sustained and growing anti-sweatshop movement, debate over the impact on labor of the globalization of the economy and free trade pacts such as NAFTA have propelled these issues into the spotlight over the past few years. This in turn has generated efforts on the part of a wide range of stakeholder groups to encourage the adoption and enforcement of codes of conduct. Examples include the following:

Human rights organizations increased focus on corporations: Global human rights groups such as Amnesty International, Human Rights Watch, and the Lawyers' Committee on Human Rights have focused increased attention on company action in recent years, including in the area of codes of conduct. Examples include: (1) the Lawyers' Committee on Human Rights' participation in the White House Apparel Industry Partnership, a cross-sectoral effort to develop an industry-wide code of conduct and principles for monitoring in the global apparel industry (more information below); (2) Amnesty International's business unit, which has developed proposed standards for corporations concerning human rights, and (3) Human Rights Watch's reports on issues included in codes of conduct, such as pregnancy discrimination in Mexico and bonded child labor in the Indian subcontinent.

Publicity campaigns calling on companies to develop and monitor codes: Labor and human rights advocacy groups in the US and abroad have generated campaigns calling on companies to develop and implement codes of conduct, and to establish mechanisms to monitor these codes. The New York-based National Labor Committee and San Francisco's Global Exchange are two groups actively engaged in promoting these campaigns.

Shareholder resolutions on codes and production regions: Activist shareholders -- primarily religious organizations affiliated with the Interfaith Center on Corporate Responsibility (ICCR), union-affiliated groups and socially responsible investment firms such as Franklin Research and Development -- have increased pressure on publicly-held companies, chiefly through shareholder resolutions seeking the adoption of codes of conduct or the avoidance of certain countries with poor human rights records.

Consumer boycotts against companies accused of human rights violations: Some companies have been subject to consumer boycotts for alleged labor rights violations of their business partners; others have been targeted for doing business in countries with poor human rights records (e.g. Burma, China, Indonesia and Nigeria).

Development of trade association codes of conduct:

Toy Industry: The International Council of Toy Industries (ICTI), representing the world's top toy makers from the USA, Europe, and Japan, has adopted a code of conduct committing the toy industry to providing fair, lawful, safe and healthy working conditions for industry employees.
Sporting Goods: The World Federation of Sporting Goods Industry (WFSGI) has established a "Code of Best Practice" to help eliminate the use of child labor in its members' manufacturing operations, especially in its most intolerable forms.
Central American Export Associations: Export Manufacturers Associations in Guatemala, Honduras, El Salvador and elsewhere have developed codes of conduct for their members. The Guatemala code is accompanied by a monitoring system implemented by the Guatemala affiliate of a major US auditing firm.

Collaborative company/NGO efforts to develop consensus labor standards:

Apparel Industry Partnership: This task force of apparel manufacturers and retailers; trade unions; and human rights, consumers, and religious organizations, convened by President Clinton in 1996, has agreed on a code of conduct defining standards for humane working conditions in the apparel industry in the US and abroad. (See "Standards" section.)
Social Accountability 8000 (SA 8000): The Council on Economic Priorities Accreditation Agency (CEPAA) has developed a new global standard for ethical sourcing (see section on "Standards"). Toys 'R Us, Avon Products, and Otto-Versand plan to apply SA 8000 in some or all of the facilities producing their goods. A number of auditing firms in the US, UK and Europe plan to offer SA 8000 auditing services.
Ethical Trading Initiative (ETI): The ETI is a collaborative initiative involving British companies, trade unions, development and human rights organizations, and the British government, whose mission is to encourage the application of international labor standards, as well as monitoring and auditing methods involving organizations outside the corporate sector. Companies involved include Boots the Chemist, British Telecom, C&A, J. Sainsbury, Littlewoods, Tesco Stores, and The Body Shop.

Establishment of university licensee codes: Duke University and Notre Dame University, among others, have established codes of conduct for licensees that manufacture products bearing their university trademarks.

Government initiatives promoting the development of codes of conduct:

US-EU Symposium: The Secretaries of Labor of the US and the European Union convened the first "US-EU Symposium on Codes of Conduct" in February 1998. Several US and European companies and non-governmental organizations (NGOs) discussed the effectiveness of codes in improving global working conditions. A follow-up meeting is planned for December 1998 in Washington, D.C.
US Legislation: US legislators introduced a bill in June 1997 that would give companies that adhere to the bill's proposed code of conduct preference in government contracts and foreign trade and investment assistance. The bill was referred to several committees, but was not acted upon.

EXTERNAL STANDARDS
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In shaping a code, a company can access a variety of sources, ranging from local laws and regulations to internationally-accepted standards such as those set by International Labor Organization (ILO) conventions. In most cases, companies have taken a "hybrid" approach: applying local laws on some issues, internationally-established standards on others, and more rigorous company requirements on still others. The range of options includes the following:

Internationally-Accepted Standards : There are several sources of internationally-established standards on human rights and labor rights. These include:

Basic human rights standards contained in the United Nations Universal Declaration of Human Rights (UDHR), a document adopted by most of the world's nations in the wake of World War II. Article 23 (2) of the UDHR, for example, states: "Everyone, without any discrimination, has the right to equal pay for equal work."
International Labor Organization (ILO) conventions on a wide range of labor issues, such as child labor, freedom of association, working hours, and health and safety. ILO Convention No. 138 on Minimum Age for Admission to Employment (1973), the most commonly cited international standard on child labor, states in part that the minimum age for employment: " . . . shall not be less than the age of completion of compulsory schooling and, in any case, shall not be less than 15 years. Developing countries may initially specify a minimum age of 14 years."

Relevant Legal Standards : Full compliance with relevant laws regarding labor rights is typically incorporated into company codes. This occurs most frequently with respect to issues such as wages, benefits, and working hours. For example, typical code language on wages and benefits reads: "Suppliers must pay wages and benefits and provide compensation for overtime consistent with local laws."

Consensus Standards: The following represent examples of consensus standards developed and agreed to by coalitions of companies and, in some cases, other stakeholder groups.

Apparel Industry Partnership (AIP): The AIP (see Recent Developments section) agreed jointly to a Workplace Code of Conduct. This code will be applied by companies in the AIP, and has served as the basis for codes developed and implemented by other companies as well. Illustrative of AIP code language is its section on health and safety which states: "Employers shall provide a safe and healthy working environment to prevent accidents and injury to health arising out of, linked with, or occurring in the course of work or as a result of the operation of employer facilities."
Social Accountability 8000 (SA 8000): The Council on Economic Priorities Accreditation Agency (CEPAA) has developed a new global standard for ethical sourcing, the Social Accountability 8000 (SA 8000). This factory certification system, modeled on the International Standards Organization (ISO) systems for certifying quality assurance, seeks to create an "auditable" code of conduct that can be applied across consumer products industries. SA 8000 language on compensation reads, in part: "The company shall ensure that wages shall meet at least legal or industry minimum standards and shall always be sufficient to meet basic needs of personnel and to provide some discretionary income."
Trade Association Standards: Some trade associations, as noted above, have developed codes of conduct that apply to all their members. Sample language in the Toy Manufacturers of America (TMA) code states in part that: " . . . employees must show up for work voluntarily, not be put at risk of harm, and be fairly compensated in accordance with the prevailing local laws."

NGO Standards: Non-governmental organizations (NGOs) such as human rights groups and religious organizations have proposed human rights guidelines for business operations. Examples include:

The business unit of the London-based human rights group Amnesty International has established a set of principles concerning the link between business and human rights. These principles address issues such as health and safety, freedom of association, non-discrimination, disciplinary practices, avoidance of child and prison labor; and background checks on security staff.
The Interfaith Center for Corporate Responsibility (ICCR), a coalition of religious investors that assists shareholders in advancing resolutions on global labor issues, has developed a set of "Principles for Global Corporate Responsibility" recommending standards on human rights, labor rights, the environment and sustainable community development. One principle calls on companies to "withdraw from a country in instances where there are gross and systematic violations of human rights and where there is a recognized movement from within the country calling for withdrawal."
The Netherlands-based Clean Clothes Campaign, a consortium of European trade unions, human rights groups and development organizations, has drafted a code of conduct that it is promoting to the business community. On the issue of freedom of association, the code states: "Workers' representatives shall not be the subject of discrimination and shall have access to all workplaces necessary to enable them to carry out their representation functions. Employers shall adopt a positive approach towards the activities of trade unions and an open attitude towards their organizational activities."

IMPLEMENTATION STEPS
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On the surface, many company codes of conduct look similar. What sets apart an effective code is how well it is institutionalized and implemented. The following elements contribute to the effective institutionalization of a code of conduct:

Covers all relevant and important issues: These can vary depending on such factors as sector (shoe manufacturers vs. coffee growers), sourcing regions (China vs. the Middle East), company standards (leadership vs. industry norm), and company values (short-term vs. long term strategies).

Uses language that reflects the company's intentions with regard to enforcement: Outright bans on certain practices are found most often on subjects where clear, internationally-accepted principles are applied, for example, on child labor and forced labor. On issues where practices vary, and widely accepted, measurable standards are less available, companies are more likely to insert language which permits some flexibility.

Has been crafted with the involvement and support of key company managers: Companies have found that drafting a code in conjunction with the functional areas responsible for some aspect of its enforcement is critical in getting the "buy-in" necessary for its effective implementation. This can include the following function: Sourcing, Product Development, Quality Assurance, Purchasing/Buying Agents, Sales, Legal Affairs, Human Resources, Public Affairs/Communications, and Government Affairs.

Is communicated clearly both internally and externally: Communicating the code to all key company managers, as well as to business partners, workers, and the public, is essential to clarifying the provisions of a code and their importance. Communication can take several forms, including workshops for internal staff and vendors, meetings and signed agreements with business partners, posting codes on factory walls for workers, and making the code available to the general public.

Includes staffing plans and implementation efforts: A code's effectiveness depends on successful enforcement mechanisms, which vary from company to company. Some companies dedicate staff solely to overseeing implementation of codes of conduct. Other companies assign implementation duties to personnel whose core job responsibilities lie in other areas such as sourcing, quality assurance, or production engineering.

LEADERSHIP EXAMPLES
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These "leadership" practices have been chosen as illustrative examples in the area of corporate social responsibility addressed by this topic overview. They are intended to represent innovation, higher than average commitment, unusual industry practice or a comprehensive approach to this issue. Periodically, the examples listed may be changed. If you wish to share information about your company's leadership practices or policies, please press the "feedback" button on the bottom right of this screen and provide the relevant information. (Many of the company examples and policies cited in this report have been verified and approved. Final approvals for others are pending and information will be modified if necessary.)

Three years ago, simply having a code of conduct was regarded as a best practice. Today, most major companies in a number of sectors -- for example the apparel, footwear, toys and retail sectors -- have developed or are developing codes. Many companies have also revised their codes to incorporate lessons learned from their own or other companies' experiences. Among the current "best practices" of code development and implementation are the following:

Gap, Inc. , among others, has taken a step beyond prevailing industry practice by including supplementary standards in its code of conduct. These serve to expand upon the basic principles outlined in the code. They are especially useful on quantifiable standards such as worker health and safety. Supplementary standards on fire extinguishers, for example, state: "Fire extinguishers are appropriate to the types of possible fires in the various areas of the factory, are regularly maintained and charged, display the date of their last inspection, and are mounted on walls and columns throughout the factory so they are visible and accessible to workers in all areas." Gap's code was cited by the Investor Responsibility Research Center (IRRC) as "significantly more detailed and specific in most categories than any other code" in a survey of 46 company codes of conduct. (Large, Apparel/Shoes/Textiles, United States)

Levi Strauss & Co. is widely credited with establishing the first comprehensive code of conduct in 1991, when it created the company's Terms of Engagement for Foreign Business Partners. This code still ranks among the leaders of the industry. The code includes Country Assessment Guidelines for assessing the risks and opportunities to their corporate reputation of conducting business in a particular country. (Large, Apparel/Shoes/Textiles, United States)

Radio Flyer (creator of the "little red wagon") is one of a handful of small companies that have developed codes of conduct and vendor agreements for their suppliers, as well as audit documents to help them more effectively monitor compliance with these guidelines. (Small/Midsize, Toys, United States)

Reebok uses a Guide to the Reebok Human Rights Production Standards to explain in detail how its code of conduct is to be implemented in a factory setting. The Guide is the cornerstone for training factory managers and monitoring workplace conditions. In addition, Reebok is among several companies that have begun translating their codes of conduct into local languages and posting these in public places in their contractors' factories. (Large, Apparel/Shoes/Textiles, United States)

SAMPLE POLICIES
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The following are code of conduct provisions on specific labor issues from select companies. These examples are cited for illustrative purposes.

adidas Wages and Benefits Policy : "Business partners shall pay their employees the minimum wage required by law or the prevailing industry wage, whichever is higher, and shall provide legally mandated benefits. Wages shall be paid directly to employees in a form they understand. Advances and deductions from wages shall be carefully monitored, and shall comply with law." (Large, Apparel/Shoes/Textiles, Germany)

Dayton Hudson Corporation -- Child Labor Policy : "Dayton Hudson will seek vendors who do not use child labor. Dayton Hudson will expect its vendors to comply with the law of the country of origin in defining the term 'child', but we will not knowingly use vendors that use labor from persons under the age of 14 regardless of the law of origin. Dayton Hudson will support the development of legitimate workplace apprenticeship programs for the educational benefit of younger people as long as the child is not being exploited or given jobs that are dangerous to the child's health or safety." (Large, Retail Stores, United States)

Honeywell -- Discrimination Policy: "Honeywell believes and recognizes that every individual is unique and valuable and that talent exists and should be sought from among all population groups. Accordingly, Honeywell's search for diversity includes, but is not limited to, nationality, race, religion, physical abilities and qualities, ethnicity, geographic origin, language, politics, family status or ***ual orientation. Our policy is to prohibit discrimination on the basis of these dimensions either in the workforce or in recruitment practices." (Large, Manufacturing, United States)

Wild Planet Toys -- Working Hours Policy: "Wild Planet will not knowingly do business with manufacturers that enforce working hours that are longer than those defined by applicable local laws, except for appropriately compensated overtime." (Small/Midsize, Toys, United States)

AWARDS/RECOGNITION PROGRAMS
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At this time there are no awards given to companies specifically for their codes of conduct. However, the Council on Economic Priorities, when conferring its Corporate Conscience Awards, has used codes of conduct as one of the criteria to evaluate efforts to eliminate sweatshop conditions and recognize companies that are effective and innovative in doing so.