Mind the Gap: A Journey to Sustainable Supply Chains

Sean Ansett

Published online: 10 October 2007# Springer Science + Business Media, LLC 2007

Abstract Many companies still view Corporate Social Responsibility (CSR) as solelyphilanthropy rather than addressing their material issues. A few companies that have beganto see the strategic advantages of being socially responsible and addressing their social,environmental and economic challenges. Developing an effective strategy can rewardcompanies with reputation enhancement, license to operate, avoiding litigation, recruitmentand retention of employees and developing process, product and strategic innovations. Onecompany who has realized the value of investing and integrating CSR into the businessmodel is the apparel retailer Gap Inc. This article will examine the evolution of Gap Inc.and its work developing an effective labor standards assurance program and stakeholderengagement strategy transformed historically adversarial relationships with key stake-holders into collaborative multi-stakeholder partnerships. Particular attention is put towardsGap Inc.s learnings in the process and how these new insights innovated the companysCSR strategy over time.

Key words corporate social responsibility . stakeholder engagementmulti-stakeholder initiative . code of conduct . public private partnerships . innovation

Companies have made our world a global village. Now they must help keep itlivable. Because if it cant be made to work for all, in the end it will work for none.John Ruggie, Special Representative of the UN Secretary General on Business andHuman Rights. (Gap Inc. 2007 CSR Report, pp 4).

Introduction

A large number of companies still view Corporate Social Responsibility (CSR) in a myopicmanner referring solely to their philanthropic pursuits. It is still just a few companies thathave began to see the strategic advantages of being socially responsible and addressingtheir social, environmental and economic footprints. Developing an effective strategy canreward companies with reputation enhancement, license to operate, avoiding litigation,

Employ Respons Rights J (2007) 19:295303DOI 10.1007/s10672-007-9055-x

S. Ansett (*)Calle San Mateo 18, 3 piso Centro, Madrid, Spain 28004e-mail: sean@atstakeadvisors.com

recruitment and retention of employees and developing process, product and strategicinnovations.

One company that has realized the value of investing and integrating CSR into thebusiness is the apparel retailer Gap Inc. Although the company is recognized to be a leaderin CSR today most notably for its supply chain human rights program this was not alwaysthe case.

Gap Inc.s CSR program was not always highly regarded by stakeholders. As few as10 years ago, the company was perceived as one of the poster children of globalizationgone wrong. Gap Inc.s evolution was not easy. In 2006, the company produced productsin over 2,000 factories in 50 countries around the world (Gap Inc., http://www.gapinc.com/public/SocialResponsibility/sr_fac_wwf.shtml). Providing assurance remains a daunting,resource intensive and complex task.

So how did the company transform itself from a corporate villain and the target of constantprotests to a respected and transparent organization in a relatively short period of time?

This article will examine the evolution of Gap Inc. and its work developing an effectivelabor standards assurance program and how the company transformed historically adversarialrelationships with key stakeholders into collaborative multi-stakeholder partnerships.Particular attention is put towards Gap Inc.s learnings in the process and how these newinsights helped with the innovation of the companys CSR strategy over time.

Simon Zadek of AccountAbility describes the path that organizations typically take whendeveloping a sense of corporate responsibility in five stages as they move along the learningcurve including (1) Defensive (deny practices and responsibility), (2) Compliance (adopt apolicy-based approach as a business cost), (3) Managerial (embed the societal issue into coremanagement processes), (4) Strategic (integrate the societal issue into their core businessstrategies and (5) Civil (promote broad industry participation in corporate responsibility)(Zadek 2004, p. 4). As Zadek suggests, Gap Inc. has passed through these stages as theyfollowed the path of responsibility moving from stakeholder pressure to dialog.

Clearly there is much work still to be done to improve labor standards for the millions ofworkers working in global supply chains, but some positive changes have been realizedalong the way. Unfortunately, many companies continue to employ crisis managementmodels to address corporate social responsibility issues that are largely ineffective andwaste resources.

Why are global apparel brands such a precarious place? To answer this question it isimportant to understand the current context underlying the industry.

Context

The garment industry can positively impact the economy in many ways. As suggested byIvanka Mamic of the International Labor Organization, Garment manufacturing is a criticalsource of employment and growth to many developing economies. The apparel industry isoften recognized as the stepping-stone to industrialization as garments may initially beproduced at home and then, with the influx of minimal capital, produced in factories.Apparel production is labor-intensive, requiring few skills, and those that are required canbe learned on the job. Generally, as economies become more industrialized and wagepressures increase the apparel industry declines in importance and countries focus ondeveloping more sophisticated industries such as electronics, computers and automobiles(Mamic 2004, p. 149).

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On January 1st, 2005, the Multi Fiber Agreement was lifted removing all quotas ongarments putting workers jobs at risk and providing more flexibility for multinationalcompanies to develop new sourcing markets. Since then, garment industry supply chainshave continued to migrate to developing countries that offer lower wage rates, quality andspeed to market. Typically these countries are characterized as having a lack of governmentenforcement of national and international labor laws due to resource constraints, lack ofinfrastructure, fear of losing foreign direct investment and corruption. Global supplychains have created new opportunities for labour-intensive exports from low-cost locations.The result is a dramatic growth in the number of producers, heightening competition amongthe worlds factories and farms for a place at the bottom of the chain. At the top end,however, market share has tended to consolidate among a few leading retailers and brandnames (Raworth 2004, p. 34). The consolidation leads to increased risk for retailers andmakes them easy targets for campaigns that can seriously damage their brands andreputations. Apparel brands tend to create an emotional connection with consumers makingthem good targets unlike less sexy products such as hammers and nails.

Gap Inc.s Journey

Code Emergence

In 1991, Levis Strauss and Company was the first multinational company to developguidelines for sourcing the earliest code of conduct in the garment industry. Gap Inc.followed suit in 1992. Gap Inc.s guidelines covered labor, environment, and health andsafety standards throughout the companys supply chain and placed responsibility on themanufacturer to commit to implementing these guidelines in order start or continue abusiness relationship with the brand. The policies were developed with good intentions butrelied heavily on trust that the manufacturer would in fact implement these requirementswith minimal oversight. In reality, the piece of paper meant little to the majority ofmanufacturers and few improvements were made. Limited oversight of the guidelinesimplementation was provided by sourcing, production and quality assurance personal ratherthan professionals with appropriate expertise.

Wake Up Call El Salvador!

In 1995, the company was informed by the National Labor Committee that serious laborrights violations were occurring at the Mandarin International factory in El Salvadorincluding infringements on freedom of association by factory management in response toorganizing activities taking place at the factory. A swat team of senior Gap Inc. represen-tatives staff was sent to the factory site to discuss the issues with management, workers andlocal non-governmental organizations (NGOs). Most of the allegations including unionbusting turned out to be true and remediation plans were developed to resolve these issues.Gap Inc. at this time also agreed to develop the industrys first independent monitoringprogram involving local labor rights NGOs in El Salvador as well as expanding a similarprogram to two additional Central America countries as part of the agreement.

The wake up call clearly demonstrated that the company needed to invest more in theircompliance program beyond the guidelines and develop a program that would bring thepiece of paper to life in factories.

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People Power

In 1996, the company enhanced the guidelines to reflect the companys current vendor codeof conduct and the company began to recruit and develop a global compliance team tomanage the inspection and enforcement of the code in factories. The team was developed tohave a small corporate presence in order to target resources on a large field team of vendorcompliance officers (VCOs) who monitored the factories on an ongoing basis. The VCOswere charged with visiting factories, conducting sensorial inspections, reviewing documen-tation and interviewing workers to determine compliance with Gap Inc.s Code of Conduct.Translators also were hired as needed for the worker interviews and areas for improvementwere discussed with management. Remediation plans were developed and follow-up visitstook place to ensure that recommendations were implemented. If a new factory failed tocomply, no production could take place until factory management corrected all outstandingissues. The philosophy was to continue to work with factories to achieve continuousimprovement rather than cut and run. Ultimately, if no progress was made the businessrelationship had to be terminated. The VCOs work was complemented by using externalmonitoring companies to conduct audits. The company grew this team to over 90 membersover the next several years becoming at that time the largest internal monitoring team in theindustry.

Many of the teams members came from distinct disciplines and sectors includingNGOs, trade unions, journalists and former factory management. As the companydeveloped its internal team, contracts were discontinued with external auditors.

Although Gap Inc. was making a major investment in factory monitoring the companycontinued to be insular in its external communications and engagement. Gap Inc. took adefensive posture to criticism citing the size of its team and its comprehensive program todemonstrate its good intentions. The management philosophy at the time was to continuedoing the good work but to keep quiet about the companys efforts and get caught doingwell. The failure of this strategy was that they never got caught doing well. Almost nodialog was exchanged with external organizations and campaigns against the companyintensified.

Wake Up Call Saipan!

In 1999, Gap Inc. along with 25 other US retailers were brought to court over laborconditions in the United States Commonwealth of Saipan including allegations of violatingfederal law by using indentured labor, non-payment of overtime and intolerable livingconditions for the foreign contract workers who labored on the island.

In 2002, 26 retailers and 23 Saipan garment factories settled the lawsuit. The $20million settlement and an independent monitoring program for the island were approved bya federal judge in April 2003 (Clean Clothes Campaign, http://www.olympicflame.org/legal/04-01-08.htm). The Saipan lawsuit was the second public wake up call that signaledthat monitoring alone was not the solution but only one of many interventions that areneeded to improve working conditions.

In response to the particular issues related to foreign contract work highlighted in theSaipan lawsuit the company implemented a separate set of guidelines for foreign contractworkers and expectations for their vendors who used this type of labor.

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Come Together

During the late 1990s, new types of models were emerging called multi-stakeholderinitiatives (MSIs). In the US, the Fair Labor Association (FLA) was launched made up ofbrands, NGOs, in addition to colleges and universities. The initiative was to provide acheck the checker process to evaluate how a company was performing in productioncompanies. Companies would agree to have a percentage of their factories audited byaccredited FLA monitoring organizations to evaluate the effectiveness of the companysinternal monitoring program.

Social Accountability International (SAI) along with its SA8000 standard was developedincluding participation from NGOs, trade unions and companies. The SA8000 standardprovided a management systems-based approach and a certification scheme to factorieswho implemented the standard in their operations.

In the United Kingdom (UK), the Ethical Trading Initiative (ETI) was formed with asimilar governing structure as SAI but its focus was to create a space for dialog betweensectors and to pilot collaborative approaches to improving labor conditions.

Gap Inc. noted these developments but did not choose to join any of these initiatives. In1999, the company launched the Global Alliance for Workers and Communities (GA)together with Nike Inc., the World Bank and the International Youth Foundation (IYF). GAwas focused on conducting needs assessments in factories in order to target capacitybuilding programs to address those needs. Some programs included health education,canteen hygiene, personal finance and sexual harassment training. The Global Alliancenever found firm footing and closed shop in December of 2004; closure was primarily dueto a lack of stakeholder support particularly from key NGOs and trade unions, as well asoperational issues including a failure to recruit additional corporate members.

Wake Up Call Cambodia!

In 2000, a British Broadcasting Corporation Panorama report alleged that child labor was beingused in Gap Inc. contracting factories in Cambodia. Gap Inc. was only one of several retailersusing the factory in question. The journalist alleged that he knew of one worker who was12 years old which was well under the legal minimum age of 15. Gap Inc. severed relationswith the factory but decided to stay committed to Cambodia. Other brands stopped sourcingfrom Cambodia altogether and pulled their operations from the country. Gap Inc. changed itsexpectations for factory management in Cambodia to verify age documentation. Currently,management must verify age by checking the workers family book and by verifying theworkers government issued election or identification card (Gap Inc. 2003, p. 24).

Little or no engagement with external organizations beyond the Global Alliance partnersand the Independent Monitoring Working Group that was comprised of Business for SocialResponsibility, the Interfaith Center for Corporate Responsibility and the Center forReflection Education and Action that was launched as a result of the El Salvador incidentwas taking place and the issues continued to be defined by external actors.

The constant attacks and campaigns impacted employee morale, the companysreputation and drained management resources. The campaigns were successful inchallenging the company to seek new ways to address these issues and the need to engagestakeholders emerged as a priority.

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Engagement

In 2001, the company embarked on a path of new engagement with external stakeholdersusing their existing limited relationships as a springboard. The start up program was calledExternal Relations but would quickly be transformed into what is now called GlobalPartnerships. The main function of the newly formed strategic group was to developrelationships and in some cases partnerships with global and local stakeholders,complementing the work of the Vendor Compliance Officers.

The starting point in developing the strategy was simple. The company sent a seniormanager on a road trip to talk and more importantly listen to key stakeholders. Forexample, the manager would ask: (1) What is the company doing well? (2) What should thecompany stop doing? (3) What should the company start doing? Equally important thecompany started to educate stakeholders about what the company was doing and its futuredirection. Based on the insights gathered, the company began to identify opportunity areasthat would lead to improvements. The company then identified and mapped its key stake-holders and began an internal education process about the value of engagement. Finally, thecompany opened its kimono and allowed greater access to civil society groups.

Some of the core issues that were teased out of the engagement process were acted uponeither directly because of the engagement or due to timing. A few examples included thesetting of the Saipan lawsuit, reaching a collaborative agreement with the US textile workerunion UNITE!, supporting a worker run factory called Just Garments in El Salvador andresolving ongoing labor rights issues with suppliers in Lesotho, Thailand and El Salvador.In 2003 and 2004, respectively, the company also joined the Ethical Trading Initiative andSocial Accountability International thus beginning its foray into multi-stakeholder engagement.

Gap Inc.s action not words approach began to pay off for the company. The well-designed and executed strategy allowed the company to begin to identify emerging issuesevolving its approach from reactive to proactive, improving its credibility with keystakeholders who were more willing to collaborate with the company. Gap Inc. began to beperceived as part of the solution rather than part of the problem.

Public campaigns were significantly reduced as problems were being resolved beforethey snowballed into the public realm. The ability to resolve these issues without having tofight a public campaign allowed the company to help facilitate more sustainable solutionswith factory management.

Much of the success of the stakeholder engagement strategy was based on theembedding of AccountAbilitys AA1000 and key principles into operations includingcompleteness, materiality and responsiveness. AccountAbility describes the concepts inthis way: (1) Completeness is the practice of collecting and analyzing key informationoutside and inside the organization to enable the business to make informed decisions, (2)Materiality identifying and addressing the most material impacts related to its businessoperations and strategy, as well the stakeholders affected, (3) Responsiveness is buildingcapacity in senior management and employees to understand stakeholder concerns andpreparing the company to address these concerns and expectations adequately (Account-ability, UNEP and Stakeholder Research Associates 2005). These three principles are at thecore of developing a strong stakeholder engagement platform.

Transparency

In 2003, the company released its first public social responsibility report in order tocommunicate with a broader audience including its own employees. The report was

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groundbreaking including a warts and all look at the companys challenges in their supplychain, a call to action to industry peers and raising the transparency bar for future reporters.The report marked the first time the company had allowed a glimpse into its internaloperations and factory conditions.

The reports transparency further enhanced the companys credibility among keystakeholder groups and demonstrated Gap Inc.s commitment to tackling these issues. Thecompany has published subsequent reports. The 2007 report includes richer information onenvironmental and employee issues than in previous years.

Collaboration

A growing number of stakeholders are realizing that they cannot solve the worlds problemsalone and that they can benefit from working with each other. The developments over thepast 10 years, specifically in the apparel sector, are leading to increased partnershipsbetween NGOs, companies and trade unions.

Each sector is realizing the value of sharing their respective competencies, expertise,resources and local knowledge to develop solutions. According to Steve Waddell, NGOs areproviding a means of linking the economic and production oriented world of business withthe social and value-generating one of civil society. At one level, this translates into providinglinkages to low-income people and interest groups that the comparatively wealthy, expensiveand elite world of business has difficulty connecting with and understanding.

At another level, this means making business aware of issues not immediately involvedin production, such as the environment, poverty, social inequality and social justice(Waddell 2000, p. 205).

Gap Inc.s participation in two multi-stakeholder initiatives with ETI and SAI enabledthe company to continue to develop new relationships and learn from peer companies andother stakeholders and it began to challenge the internal and external status quo.

One area that was challenged was Gap Inc.s own internal purchasing practices and howthese practices might be part of the problem. Through its participation in ETI, Gap Inc.partnered with Womens Working Worldwide (WWW) a UK-based labor rights NGO, toexamine the companys purchasing practices. WWW found that Gap Inc.s product leadtimes, delays in approvals and last minute changes in styles could negatively impactworking conditions that might have led to illegal subcontracting and overtime as well asincreasing costs to Gap Inc. http://www.gapinc.com/public/documents/www_study.pdf.

The company examined the findings and worked internally to change practice to not onlyimprove working conditions but also lower costs and improve relationships with suppliers.

Gap Inc. also realized the importance of developing training programs to improvesupplier understanding about international labor standards. Joint worker and managementtrainings were developed on national and international labor law including the developmentof internal dispute mechanisms. Investments were made in productivity trainings forvendors and other complementary programs to try to address the root cause of issues. Theseintervention points when carried out successfully resulted in improved productivity, lowerworker turnover, better use of materials and less waste and improved wages providing awinwinwin for factory management, workers and brands http://www.gapinc.com/public/documents/impactt_hkpc_results.pdf p 1.

In 2006, Gap Inc. partnered with the International Textile and Garment Leather WorkersFederation to train the companys internal monitoring team on Freedom of Association andCollective Bargaining issues. In 2007, the company and the ITGLWF hosted a joint trainingfor their approved Cambodian suppliers bringing together factories, global and local trade

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union representatives, the International Labor Organization (ILO) and US governmentofficials in order to raise issues of concern in the workplace and seek solutions. Participantshoped to develop similar dialogs that would take place within the factory (Gap Inc. 2007CSR Report). These collaborative arrangements seek to improve industrial relationsbetween management and worker representatives in order to build sustainability into theprocess and resolve issues on the factory floor rather than through a policing modelwhich has limited impact and creates distrust between parties.

Civil Space

The latest development in Gap Inc.s pursuit in engaging more broadly is the companysparticipation as a founding member in the MFA Forum thus entering into the civil space ofsocial responsibility. The MFA Forum was established in early 2004, in response togrowing anticipation throughout the garment and textile industry that the phase-out ofquotas would lead to major changes in the sourcing of garments, and potentially negativeconsequences for countries that had come to rely on garments exports (MFA Forum, http://www.mfa-forum.net). The MFA Forum includes participation from organizations such asthe ILO, Oxfam, Maquiladora Solidarity Network and Marks and Spencer.

The MFA Forum developed programs in Bangladesh and Lesotho to assist thesecountries and their respective governments with the post MFA transition as well. TheMFAs technical assistance helps to develop responsible competitiveness frameworks inorder to maintain and grow foreign direct investment.

Active participation in the MFA Forum has transformed Gap Inc.s program to focus moreon civil action and broader change working with governments and multilateral institutions.

Future Expectations

Global brands will continue to face increasing expectations by stakeholders as theiroperating environment changes and stakeholders become more educated on the core issuesfacing the industry. Future issues emerging for apparel companies include the need toprovide deeper assurance into the supply chain, full supply chain disclosure and theadoption of a common code of conduct like the JO-INs (the Joint Initiative on CorporateResponsibility and Workers Rights) code.

Traditionally, compliance models in the garment sector primarily focused on the cut andsew operations forward or the point where the textile is transformed into garments. But likean iceberg much risk remains underneath this level of production from the heavy use ofwater and in some cases forced child labor used to harvest the cotton in countries likeUzbekistan, to the ginning of the cotton and its transport to the large textile mills thatlargely have not been subject to monitoring or oversight.

A number of companies including Nike Inc., Levis & Co., Reebok and Timberland haverecently disclosed their contracting factories names and addresses globally. Supply chaindisclosure by these companies allows stakeholders to check on labor conditions directly andutilize their local networks in-country including more direct discussions with workers.

JO-IN is a multi-stakeholder initiative made up of all the key initiatives including theWorkers Rights Consortium, the Clean Clothes Campaign, the Fair Wear Foundation,Social Accountability International, the Fair Labor Association and the Ethical TradingInitiative. JO-IN successfully developed a common code of conduct by adopting the higheststandard from their existing codes, international conventions with the intention of easing

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the proliferation of codes of conduct and the confusion this has created. The initiative istesting the implementation of such a code with initial pilots taking place in Turkey.

It is important to note that Gap Inc. like the majority of companies has yet to monitorlabor conditions beyond cut and sew. Gap Inc. has not disclosed its factory list or adoptedthe universal code. Will Gap Inc. continue to maintain its leadership and continue along thepath to sustainability?

Concluding Thoughts

The field of social responsibility is rapidly evolving. It is becoming important forcompanies to integrate their acquired knowledge into corporate strategy to make theirprograms sustainable over the long term. Stakeholders are savvier at shifting the lines oftraditional responsibility with more focus on companies.

Gap Inc. has gone through a cycle of institutional learning. The wake up calls includingEl Salvador, Cambodia and the Saipan litigation served as an impetus for retooling the waythings got done within the company.

The company has evolved its practices and approaches through developing an effectivestakeholder engagement strategy and creating spaces for dialog with its critics and otherstakeholders. Constructive dialog has been the key to understanding the needs of eachsector, identifying collaborative spaces for collective action, building respect andtransforming the companys approach.

There is clearly much to do to improve the garment workers quality of life. Gap Inc.seems to be marching along an enlightened path even if perhaps at times it requires takingone step forward and two steps back. Is Gap Inc. developing a truly civil corporation that isbuilt to last? Time will tell.

References

Accountability, UNEP and Stakeholder Research Associates (2005). The Stakeholder Engagement ManualVolume 2: The Practitioners Handbook on Stakeholder Engagement.

Clean Clothes Campaign. http://www.olympicflame.org/legal/04-01-08.htmGap Inc. 2003 CSR Report. http://ccbn.mobular.net/ccbn/7/645/696/index.html.Gap Inc. 2007 CSR Report. http://www.gapinc.com/public/documents/CSR_Report_05_06.pdf.Mamic, I. (2004). Implementing code of conduct: How businesses manage social performance in global

supply chains. Geneva and Sheffield: International Labor Organization in association with GreenleafPublishing.

MFA Forum. http://www.mfa-forum.net.Raworth, K. (2004). Trading away our rights: Women working in global supply chains. Oxford: Oxfam

International.Waddell, S. (2000). Complementary resources: The winwin rationale for partnerships with NGOs. In J.

Bendell (Ed.), Terms of endearment: Business, NGOs and sustainable development. Sheffield:Greenleaf.

Zadek, S. (2004). The path to corporate responsibility. Harvard Business Review, 82, 125133.

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Mind the Gap: A Journey to Sustainable Supply ChainsAbstractIntroductionContextGap Inc.s JourneyCode EmergenceWake Up Call El Salvador!People PowerWake Up Call Saipan!Come TogetherWake Up Call Cambodia!EngagementTransparencyCollaborationCivil SpaceFuture ExpectationsConcluding Thoughts

References

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