Friday, June 16, 2006

Corporate Social Responsibility and Voluntary Codes: Apple, its Stakeholders, and its Chinese Laborers

The last 30 years or so have seen a growing interest in voluntary corporate codes. These codes have been advanced as a means of regulating the behaviour of economic collectives—and especially multinational corporations—and those with whom these corporations interact in the global market. Voluntary codes have been crafted to regulate both internal corporate governance and corporate business ethics with a variety of stakeholders, including labour, suppliers, customers and nation-states.

Voluntary codes are essentially an unregulated global products market. Producers of all sorts have gotten into the market for the production of these codes. Voluntary Codes have been produced by individuals, organizations, states and international bodies. Codes are produced for direct consumption by business entities. All efforts to regulate these products have been unsuccessful.

Among the most well known public and public/private voluntary code producers are the United Nations (the U.N. Global Compact;, and the Organization for Economic Cooperation and Development (OECD,,2337,en_2649_201185_1_1_1_1_1,00.html), a group of 30 mostly developed states working with a larger number of states, NGOs and other elements of civil society to produce a variety of codes of conduct for business.

Non-governmental organizations have also produced a large variety of voluntary codes, usually closely tied to their own particular political, social or other agendas. These range from those of human rights organizations to those or industry groups. Governments sometimes try to help frame the format and content of these codes—for example the Canadian Minister of Industry and the President of the Treasury Board has distributed a volume called, “Voluntary Codes : A Guide for Their Development and Use” (

The greatest sourced of voluntary codes, of course, are those produced by businesses themselves to govern their own conduct. While many of these follow guidelines established by industry associations or other industry friendly groups, these codes tend to vary widely to suit the tastes and needs of the adopting company. Most major corporations have many codes of conduct—some of them required by government. In the United States, for example, the Sarbanes-Oxley Act of 2002 created strong incentives to adopt codes of financial conduct. Yet most voluntary codes owe their existence to perceptions by corporations that the codes, and the conduct they describe, are good for business, and even better if these codes also describe the institutional view of the adopting corporation.

Human rights organizations especially have criticized these codes, or at least those versions of voluntary codes produced by governments and business organizations as ineffective and self serving. A typical critique is displayed on the web site of Human Rights Watch:

“These codes have been effective in changing some corporations' conduct, but they have shortcomings. They are typically written without consultation with the workers most affected, many of whom are not even aware of their company's code. They are usually written in vague language which looks good in corporate brochures but avoids some of the stickier human rights issues, such as how to do business in a country that bars labor unions, restricts the rights of women, guards company facilities with abusive soldiers, or uses joint-venture revenue to fund military abuses. With notable exceptions, the codes generally give independent organizations no formal role in monitoring compliance. They commonly address only workplace issues and the conduct of subcontractors, not broader societal concerns.”

In a sense, then, codes are viewed as less legitimate because they are not imposed from outside by legitimate or authoritative political sources and are meant to deflect criticism arising from conduct consumers or other stakeholders find offensive. Putting aside the possible inanity of this line of reasoning (for example, does this suggest that the only legitimate action possible for non-state actors are those imposed by a government?) there is a legitimate issue worth exploring: to what extent do these voluntary codes, and especially those codes developed and adopted by a company, actually change corporate behaviour.

A recent story reported by the BBC on its web site, “iPod Slave Claims Investigated,” BBC News (UK Version), Business, June 14, 2006, available at, suggests that at least at some level, these voluntary codes—when coupled with monitoring from outside sources (for example NGOs or the media) may well tend to affect corporate behaviour at least to some small extent.

The story reads substantially as follows:

“Apple is investigating a newspaper report that staff in some of its Chinese iPod factories work long hours for low pay and in "slave" conditions. The article in the Mail on Sunday alleged that workers received as little as £27 a month, doing 15-hour shifts making the iconic mp3 player. Employees at the factory lived in dormitories housing 100 people and outsiders were banned, the paper said. Apple said it did not tolerate its supplier code of conduct being broken. . . . In a statement the firm said: "Apple is committed to ensuring that working conditions in our supply chain are safe, workers are treated with respect and dignity, and manufacturing processes are environmentally responsible." The company added it was "currently investigating the allegations regarding working conditions in the iPod manufacturing plant in China". The report said that at a different factory, in Suzhou near Shanghai, which makes the iPod shuffle, workers were paid £54 per month - but that half of that went on accommodation and food within the factory complex. According to the Mail on Sunday, women rather than men were employed on the production line. Apple is one of thousands of companies that has outsourced manufacturing to China where labour costs are low.”

There are several points to this story that make it interesting from the perspective of corporate social responsibility. First, Apple has adopted a code of conduct that essentially exports a set of behaviour norms on to its suppliers. Apple targets communication of this information to its investor community ( where it explains that “Apple is committed to ensuring that working conditions in Apple's supply chain are safe, that workers are treated with respect and dignity, and that manufacturing processes are environmentally responsible.” The Code itself is also available (id). The code itself is interesting. It is based on a model code prepared by the relevant industry group (this comes as no surprise), but it also incorporates certain international human rights and labor norms.

“Apple’s Supplier Code of Conduct is modeled on and contains language from the Electronic Industry Code of Conduct. Recognized standards such as International Labour Organization Standards (ILO), Universal Declaration of Human Rights (UDHR), Social Accountability International (SAI), and the Ethical Trading Initiative (ETI) were used as references in preparing this Code and may be useful sources of additional information. A complete list of references is provided at the end of the Code.” (Id.).

Second, Apple’s reaction to reports of the story of sub-standard wages was positive. It did not deny the allegations, it did not lash out at the monitors who brought the story to the press. Instead, it reaffirmed its commitment to its behaviour norms as set forth in its voluntary code, and promised an investigation of the allegations. Of course, we do not yet know the results of the investigation, or the depth of Apple’s ardour in pursuing this investigation, but here is an example of a voluntary code working more or less the way it is supposed to: serving as a basis by which corporations guide their workplace behaviour in a system in which informal monitoring mechanisms do sometimes produce effects. Stakeholders in global labour norms effectively were able both to monitor corporate behaviour and, at least in this initial phase, seek enforcement of inter-corporate standards.

Third, and this is not good news for those stakeholders seeking to rely on such codes, it is not clear that Apple’s voluntary supplier code was violated. Relevant language in the code provides

“Suppliers must pay wages, benefits, and overtime to workers in accordance with applicable laws, including those related to minimum wages, overtime, hours, and legally mandated benefits. Suppliers may not discriminate based on race, colour, gender, sexual orientation, ethnicity, religion, political affiliation, or marital status. The basis on which workers are being paid must be clearly conveyed to them in a timely manner.” (Apple Supplier Code of Conduct--Labour and Human Rights-Remuneration).

It is not clear that the conduct complained of violates the Code. And that is the trick to these codes. The problem here is that the nature of the violation—very low wages, much of which goes to pay for housing and food—may not violate the applicable laws of the People’s Republic of China, though surely they violate the laws of the United Kingdom and the United States.

The result is a mixed bag for stakeholders. On the one hand, Apple may be able to conclude its investigation with a vindication of sorts for its supplier, its Code, and the current wage policy. This may produce changes in the way Apple's supplier will conduct its business in the future, irrespective of the minima required under Chinese law. The changes would result not from an application of Chinese law or legal process, but by the application of remedies and powers available to Apple through its supplier agreement. Thus, for example, Apple may be able to cut off the supplier, refuse to accept goods from the supplier, or stop payments to the supplier under the contract until the supplier agrees to inspection, mediation and some action indicating a willingness to comply with the terms of the supplier agreement, at least as Apple understands it.

On the other hand, Apple might just "play to the media" and engage in a pro forma investigation producing no changes. But this latter approach carries dangers of its own. The same complex of civil society monitors and the media that produced the initial reports of possible violation can also distribute widely reports of Apple's refusal "to do anything about it." Even technical compliance unfavorably reported can be dangerous. Consumers may be disgusted by such technical compliance (especially in light of their own standards of right conduct) and that may affect sales of Apple products. As a consequence, Apple may wind up having to renegotiate labor conditions even though no policy was formally violated.

Thus the lessen: voluntary codes work best when they produce standards that can be monitored, when they are embraced by companies willing to investigate stakeholder claims of violation, and when stakeholders can affect the consumer markets for companies irrespective of the existence of the codes. Thus, ironically enough, the codes are merely a means through which stakeholder power is most effectively asserted—by affecting consumer markets. For proponents of free market globalization, this works very well indeed, even if it is uncomfortable for the affected companies; that is only business. For the stakeholders, including NGOs, this works well, too. They are able to skip the governmental middleman, so-to-speak, and directly affect corporate behaviour in a precise and targeted way. For NGOs weaned on the need for government intervention, this should serve as an assurance that the state is not a necessary predicate for effective action, even by those with no state power. Free market globalization was opened a great new market for consumer information; it is up to NGOs and other elements of civil society, as well as corporations and other economic actors, to get into the game.

Voluntary codes can work in the market, without formal bureaucratic structures or direct government intervention. All it seems to require are consumers, producers and taste-makers. Here is a very productive confluence of democracy and capitalism. But one in which there is very little room for the active participation of the state.

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