Saturday, March 17, 2012

Transparency and Monitoring Corporate Social Responsibility: Apple, Foxconn and 'This American Life'

Apple, Inc., has long operated its own set of corporate social responsibility grounded codes of operation for its own activities and those of its supply chain. It has also long been the object of monitoring, based in part ion its reports and in part on the investigative work of outside monitors, facilitated by press coverage of the results of these investigations, for a number of years. See, e.g., Larry Catá Backer, Corporate Social Responsibility and Voluntary Codes: Apple, its Stakeholders, and its Chinese Laborers, Law at the End of the Day, June 16, 2006. 
It is possible to surmise that 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. It also now appears to affect the behavior of CSR civil society and media monitors as well. This essay focuses on Apple's relationship with its monitors and the development, at least in initial outline, of the form that the discipline of transparency monitors will take--with particular attention to the recent monitoring misrepresentation retracted from This American Life.

 (From Charles Arthur, This American Life withdraws damning Apple episode, The Guardian (UK), March 16, 2012).
As with other companies that evade participation with large-scale transparency efforts, third party entities have investigated Apple’s business practices, in particular employment and environmental practices at locations along the manufacturer’s supply chain. Representative of these investigative efforts is the report published in 2007 by the Stichting Onderzoek Multinationale Ondernemingen (SOMO), a nonprofit organization whose activities are funded in part by the Dutch government, and which organizes and interacts with other environmental and labor-oriented corporate transparency organizations. (‘About SOMO’, at web. See, ). It "investigates multinational corporations and the consequences of their activities for people and the environment around the world." (Ibid.). By aggregating Apple’s CSR policy statements and other public disclosures, then comparing them with employee interviews at several supplier factories around the globe, SOMO attempted to see how well the company was living up to the aspirational language of its policy claims. (Michiel van Dijk & Irene Schipper, ‘Apple CSR Company Profile’,2/12/2012, at 4). As might be expected, a wide gap existed between Apple’s stated policy and its on-the-ground practices. (Ibid., pp. 44). This and other reports by private and media entities, have publicized the obscurity and potential for abuse latent in Apple’s self-regulated supply system. 
Likewise, the environmental NGO As You Sow has been one major source of internal pressure for the corporation, having introduced multiple shareholder proposals designed to gradually move the corporation toward greater public disclosure on its environmental impacts, including proposals for Apple to join more conventional reporting structures. (As You Sow, ‘Climate: Corporate Reporting and Emission Reduction in Computer/IT Sector: Apple’. From Although Apple has occasionally acquiesced to limited additional disclosure, it has only recently agreed to broader cooperation with third party entities. Beyond the stated purpose of maintaining its privacy and the advantage of secret supply system, Apple has clear incentives to avoid structural entanglement; investment companies have used UNGC standards as a basis for excluding companies with controversial business practices from their portfolios. (See, e.g., ‘Delta Lloyd excludes 38 companies for violating Global Compact principles’. From the Global Compact Critics blog).

(From Radio’s‘This American Life’ retracts story about Apple workers in China, cites ‘fabrications’, The Washington Post, March 17, 2012 (("The Public Theater, Stan Barouh/Associated Press) - In this undated image released by The Public Theater, Mike Daisey is shown in a scene from “The Agony and The Ecstasy of Steve Jobs,” in New York. Daisey, whose latest show has been being credited with sparking probes into how Apple’s high-tech devices are made, is finding himself under fire for distorting the truth. The public radio show “This American Life” retracted a story Friday"))

But these outside monitors also encounter difficulties and are themselves sometimes subject to the disciplines of transparency. Control of data by the data generator, in this case Apple, makes it far more difficult to verify and contest the information produced. The transaction costs of data verification can be substantial and the process difficult. (See, Larry Catá Backer, Economic Globalization and the Rise of Efficient Systems of Global Private Law Making: Wal-Mart as Global Legislator, 39(4) UNIVERSITY OF CONNECTICUT LAW REVIEW 1739 (2007)). In a recent and highly publicized example, the “weekly public radio program “This American Life” said on Friday that it was retracting a critical report about Apple’s suppliers in China because the storyteller, Mike Daisey, had embellished details in the narrative.” (Brian Stelter, ‘This American Life Retracts Episode on Apple’s Suppliers in China, The New York Times, March 16, 2012 (“The program’s host, Ira Glass, said in a statement that Mr. Daisey “lied” to him and to Brian Reed, a producer of the program, about details related to injured workers Mr. Daisey had described meeting at Foxconn, a factory in China where Apple products are made.”)).
Some of the falsehoods found in Daisey's monologue are small ones: the number of factories Daisey visited in China, for instance, and the number of workers he spoke with. Others are large. In his monologue he claims to have met a group of workers who were poisoned on an iPhone assembly line by a chemical called n-hexane. Apple's audits of its suppliers show that an incident like this occurred in a factory in China, but the factory wasn’t located in Shenzhen, where Daisey visited. (Press Release: This American Life Retracts Story Says It Can't Vouch for the Truth of Mike Daisey's Monologue about Apple in China (the Retraction Statement released March 16, 2012))
"The retraction (PDF) follows assertions by the Chinese translator who helped Daisey, who disputed the story put forward the episode and in Daisey's one-man show, which is playing in New York." (From Charles Arthur, This American Life withdraws damning Apple episode, The Guardian (UK), March 16, 2012). Fpor the retraction and the blog post announcing it and other measures takebn in response, see,  This American Life Retracting "Mr. Daisey and the Apple Factory, March 16, 2012.
The original podcast of the show had proven to be very popular.
 The podcast of the show quickly became the single most popular in This American Life's history, with 888,000 downloads and 206,000 streams. It led to a petition for better working conditions in the factories where Apple products are made. That petition eventually raised 250,000 electronic signatures and was delivered to Apple.
That, and the general tide of media coverage about conditions at the Foxconn factory, where a number of workers have committed suicide and long hours are commonplace, has led Apple to announce initiatives to improve and standardise working conditions.
Glass said Daisey was unhelpful when attempts were made to verify some of the details with his translator during the fact-checking process before the broadcas.  (From Charles Arthur, This American Life withdraws damning Apple episode, The Guardian (UK), March 16, 2012).
According to the text of the retraction:
 During fact checking before the broadcast of Daisey's story, This American Life staffers asked Daisey for this interpreter's contact information. Daisey told them her real name was Anna, not Cathy as he says in his monologue, and he said that the cell phone number he had for her didn't work any more. He said he had no way to reach her.

"At that point, we should've killed the story," says Ira Glass, Executive Producer and Host of This American Life. "But other things Daisey told us about Apple's operations in China checked out, and we saw no reason to doubt him. We didn't think that he was lying to us and to audiences about the details of his story. That was a mistake." (Press Release: This American Life Retracts Story Says It Can't Vouch for the Truth of Mike Daisey's Monologue about Apple in China (the Retraction Statement released March 16, 2012))
The errors were discovered by a correspondent for another radio program (Brian Stelter, ‘This American Life Retracts Episode on Apple’s Suppliers in China, The New York Times, March 16, 2012).  However, it also appears that Apple had been reported as having attempted unsuccessfully to rebut the allegations for some time before. (Radio’s ‘This American Life’ retracts story about Apple workers in China, cites ‘fabrications’, The Washington Post, March 17, 2012).  
 (From Larry McShane, 'This American Life' retracts bombshell Mike Daisey story on Apple, Foxconn factory conditions in China, New York Daily News, March 16, 2012 (Pix Bryan Smith for the New York Daily News) ("Mike Daisey speaks to the media after delivering petitions from more than 250,000 people protesting labor conditions at Apple's manufacturing facilities in China to Ryan Sprance of Apple at their Grand Central Terminal store."))
 Ironically this may as well suggest that, like markets for transparency structures, third party and civil society monitors may also be disciplined by competitive forces within the constraints of their own ethics universe. And it also suggests the problems of monitoring transparency in the context of the purpose for which it is used—reporting, remediation, correction, or participation in decisions about the continued engagement in certain activity. In this case, the misrepresentations were actually of events that had occurred, and had been reported, but not in the context in which they were then used. The news story about the retraction also noted:
In a report for “Marketplace” on Friday, Mr. Schmitz acknowledged that other people actually had witnessed harsh conditions at the factories that supplied Apple. “What makes this a little complicated,” he said, “is that the things Daisey lied about are things that have actually happened in China: Workers making Apple products have been poisoned by hexane. Apple’s own audits show the company has caught underage workers at a handful of its suppliers. These things are rare, but together, they form an easy-to-understand narrative about Apple.” (From Brian Stelter, ‘This American Life Retracts Episode on Apple’s Suppliers in China, The New York Times, March 16, 2012).
As a consequences the reporting was misleading but the purpose—to deploy information to pressure a reporting entity to abandon a particular practice or work place rules in favor of others, was based on something approaching verifiable facts.

Apple will continue to face this sort of self-organized monitoring scrutiny that in a way matches the self organization of its own transparency structures. However, Apple is also seeking a more networked approach to transparency by reaching out to third party auditing and certification organizations. This might well have been the result, in part, of the reaction, among consumers, investors and other stakeholders, to the reports from monitors, including those made by "This American Life." 
 The same month the episode aired, The New York Times ran a front-page investigative series about Apple's overseas manufacturing, and there were news reports about Foxconn workers threatening group suicide in a protest over their treatment.
Faced with all this scrutiny of its manufacturing practices, Apple announced that for the first time it will allow an outside third party to audit working conditions at those factories and – for the first time ever – it released a list of its suppliers. (Press Release: This American Life Retracts Story Says It Can't Vouch for the Truth of Mike Daisey's Monologue about Apple in China (the Retraction Statement released March 16, 2012))
On January 13, 2012, Apple disclosed an almost complete list of its direct suppliers for the first time, and announced their new membership in the Fair Labor Association, an NGO originally created by clothing manufacturers to monitor for sweatshop conditions in the wake of similar negative publicity. (From ‘Apple Opens Suppliers’ Doors to Labor Group After Foxconn Worker Suicides’). This shift in policy may reflect a number of realities- the recent loss of a charismatic and famously willful executive, a capitulation to skepticism from NGOs and investors about the validity of autonomous reporting, or an actual shift of internal corporate culture. The FLA will, like any third party CSR organization, impose its own requirements and image upon Apple’s supply chain, limiting its corporate autonomy. Despite this fact, future FLA reports will exist alongside Apple’s own reporting and policy statements, which will continue to exist as a means to influence third party criticism of the company’s practices. Although Apple was able to use the weight of its CSR policies to limit the consequences of early scandals, the lasting effects have culminated in a period of seemingly unrelenting publicity and attention by mass media and third party groups, demonstrating that the legitimacy of third party review is itself subject to scrutiny. (Steven Greenhouse, ‘Critics Question Record of Monitor Selected by Apple’, The New York Times, (Feb. 14, 2012, B1). At present, the company’s previous reliance on autonomous reporting practices may have had the long term effect of damaging its ability to manage its broader corporate image. Independent reporting practices can provide a company with an appealing set of central and secondary advantages, but they are not unassailable; like any other transparency regime, they cannot satisfy the incoherent desires of multiple audiences, or respond rapidly to optics problems when something goes wrong.

And thus the lesson: 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. 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. However, the transparency regimes through which is accomplished will necessarily apply as strongly against monitors as it does against the monitored. Civil society elements deeply engaged in efforts to broaden transparency and to use its monitoring roles to affect corporate conduct should take heed—their own systems of data harvesting and assessment is as likely to be scrutinized and tested, and the legitimacy of their own efforts will depend, on adherence to the norms of production and assessment of data as they mean to hold the objects of their actions.

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