What happens if a company's global reach exceeds its ethical grasp?
It's one of those "interesting- in- theory- but- impossible- in- practice" aspects of globalization: If you do business in 50 countries, whose ethical standards do you follow?
For Levi Strauss & Co., the San Francisco-based apparel company with more than 34,000 employees and $5.2 billion in sales, the question was more than hypothetical. In December 1991, NBC Nightly News aired a report accusing a Levi contractor in Saipan of forcing virtual slave conditions on its workers. For Levi, the world's largest brand-name clothing manufacturer, it was a painful moment. After all, Levi had a history of doing the right thing: keeping its workers on during the tough times in the 1930s, integrating its factories in the 1960s, making AIDs a corporate cause in the 1980s.
Even before the NBC story broke, Levi had been drafting a program designed to provide an ethics code and performance guidelines for its overseas suppliers, called the Business Partner Terms of Engagement. According to Robert Dunn, vice president for corporate affairs, Levi had concluded that "it was not okay for us to provide benefits, safety, and healthy conditions for our own workers and then use contractors who would embarrass us."
In the wake of the Saipan incident, Levi dispatched inspectors to audit Willie Tan, the island's largest clothing contractor, using a 10-page Terms of Engagement questionnnaire.
At the end, the document required auditors to state if they believed that contractors "conduct their business consistent with a set of ethical values not inconsistent with those of Levi Strauss & Co.?" It was a test that Willie Tan failed. Levi canceled its contract; the US Labor Department conducted an investigation, which led to a $9 million settlement for damages and back wages against the contractor. In early 1992, Levi began to apply its audit worldwide.
Company teams spread out to investigate business practices as well as ethical, environmental, legal, health, and safety concerns in each of the 50 countries in which Levi did business. The first revelation was simply the scope of the company's global reach. The second was the extent of the need for improvement: out of 700 contractors, roughly 140 needed some kind of upgrading, ranging from better ventilation and improved lighting to increased attention to safety conditions and better wages.
Contractors unwilling or unable to comply were suspended or terminated. More significantly, Levi decided to give up its operations in Myanmar in late 1992 and most of its $50-million-a-year operation in the blossoming market in China in March 1993.
But even the most carefully constructed questionnaire doesn't always offer guidance in the ethical jungle of the global village. When another NBC report revealed unspeakable conditions in Bangladeshi factories producing for Wal-Mart, Levi auditors looked into their contractors there and found underage children working in the factories. An easy call, right? Yes...but they also found that these children were the sole support for their families, who would starve without the income. The alternatives to factory work for the 12-year-olds were prostitution or begging on the street. The easy call became less easy. Levi's Solomon-like decision: pay the children's wages while they went to school until they reached legal working age.
Some countries, like China, dismiss Levi's Terms of Engagement as rank interference. Critics dismiss it as naiveté. Dunn sees it as the wave of the future. Wal-Mart, after its brush with investigative journalism, has adopted a similar code; Nike, Reebok, Sears, and others have also followed suit. Dunn even believes that the Levi code can become a benefit for the company's contractors. "Contractors value listing us as a client for sourcing," he says. "If they can meet our requirements, it means they can work for anybody in the industry."
Richard Rapaport writes on business and technology from San Francisco.
A version of this article appeared in the Prototype Issue issue of Fast Company magazine.