It was a deft P.R. move. Back in February, Apple disclosed its latest supplier audit with two twists. First, they announced they would disclose the name of their suppliers. Bravo. And second, the company said it had agreed to let the Fair Labor Association inspect the facilities that make Apple products.
The Fair Labor Association, or FLA, is hardly a household name. But to the average person, it no doubt sounded noble of Apple. The normally uber-secretive company was letting a third party conduct independent assessments and reporting the results.
FLA just released its report based on its inspections. Apple and FoxConn have pledged to improve conditions and raise wages. Many of the violations reported echo the violations that Apple itself has already reported through its own audit process.
Reaction is still coming in. And what happens next will be closely watched by labor and human rights activists. That’s because, when it comes to FLA, there is continued suspicion about just how “independent” it is.
“A critical report from the FLA will not, in and of itself, constitute proof that a new day is dawning in Apple’s supply chain,” wrote officials from Sum of Us, a non-profit advocating for improved global labor conditions. “It will only be proof that the FLA and Apple are smart enough to understand that no one, at this point, is going to be fooled by a whitewash.”
Labor and human rights activists have long claimed that hiring the FLA to inspect facilities is just one step short of asking the fox to guard the hen house. That’s because the FLA relies on its members for most of its fees. But it can almost certainly claim to be more independent than the industry trade group that Apple and other tech companies have, until now at least, worked through to establish supplier codes of conducts and standars for audits: the Electronic Industry Citizenship Coalition.
The EICC’s members consist of companies like Apple, Dell, Intel, HP and Jabil. Check out the EICC’s board.
So what are the advantages to working with the FLA in addition to the EICC for Apple?
FLA and Apple officials did not respond to a request for comment.
Wendy Dittmer, a spokeswoman for EICC, said the organization was established in 2004 to recognize that its members had growing concerns over labor and environmental conditions in overseas factories and wanted to improve them. But with everyone establishing their own codes and processes, suppliers were overwhelmed with duplicative requests for information and inspections. So the idea was to work together to come up with a standard code and auditing process.
A few things to note about the EICC. The EICC does some of the same things that the FLA does. It establishes a “code of conduct” for companies and their suppliers that extends to workplace conditions and the environment.
However, the EICC does not require members to disclose the results of its audits. And it does not require its members to reveal information about its suppliers. Of course some companies, such as Apple, have gone well beyond these requirements in the past to voluntarily disclose details of inspections.
While the EICC is a non-profit, Dittmer said, it falls in a category where it is not required to disclose its IRS tax form. The EICC is funded by membership dues. According to its Web site, annual dues are based on a company’s annual revenue:
- Revenue less than $9 billion (USD) = $35,000 annual membership dues
- Revenue more than $9 billion (USD) = $45,000 annual membership dues
- New members must pay a one-time application fee of $5000.
By comparison, the FLA can certainly claim to be more independent than the EICC. It’s a “multi-stakeholder” organization whose members consist of companies, universities, and apparel licensors. The FLA conducts its own audits and requires members to disclose the results. And it also has a third-party auditor re-audit some of its own inspections to make sure progress is being made on fixing violations.
Still, suspicion over whether the FLA is independent enough lingers because of its funding structure.
According to the non-profit reporting service Guidestar, the FLA had revenues of $1,251,338 in 2000, its first full fiscal year of existence. About half of that game from government grants: $649,775. By 2009, the most recent year of data available, FLA had revenues of $4,824,950, with only $62,100 coming from government grants. Most of the rest came from “program services”: $4,618,454.
So what are program services?
According to the FLA’s tax form 990 filed with the IRS, the bulk are “association membership dues”: $3.697 million. The rest of the $4.6 million comes form things like workshop fees. The filing does not disclose names of members or how much they paid. A list of participating companies can be found on the organization’s Web site.
Now that FLA has released its report, I’ll be watching the reactions and fallout to see it affects the following:
- Does the FLA report increase Apple’s credibility that it’s serious about tackling labor and environmental problems?
- Are there revelations and details that we learn from the FLA report not found in Apple’s own reports?
- What impact does this have on the rest of the technology industry in terms of how they approach this issue?
On the first question, the signs aren’t good. Groups like Sum of Us were not ready concede the audits in and of themselves hold any value:
“Indeed, it remains unclear why audit reports by a group like the FLA are of any actual value at this juncture,” wrote Sum of Us officials. “The problems at Foxconn are widely known, having been documented in multiple investigations by researchers more independent and aggressive than the FLA…The question is whether Apple is finally going to make the sweeping changes needed to end these abuses and provide decent wages and working conditions.”
Certainly it seems that if FoxConn raises wages as it has now promised, that will help Apple’s credibility. But it will ripple across all companies that manufacture overseas. But as I mentioned before, the point of the EICC was to develop a common approach and work together. Apple is now deviating from that, in theory, to raise the bar in terms of inspections and transparency. Still, not everyone in the industry is convinced that naming suppliers publicly (what Dittmer refers to as a “name and shame” strategy) will be effective. But will other companies be forced to follow Apple’s lead?
I wonder if other tech companies will see Apple’s move as raising the bar, or will it cause a rift?
“The thing to remember is that everyone is trying to improve conditions,” Dittmer said. “We’re not at odds in terms of the goal.”