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Business Commentary For retailers, expensive lawsuits focus the mind wonderfully

Alison Kemper is assistant professor of entrepreneurship and strategy at the Ted Rogers School of Management, Ryerson University. She has worked with the Michael Lee-Chin Family Institute for Corporate Citizenship at the Rotman School since 2005.

Roger Martin is professor and former dean of the University of Toronto's Rotman School of Management and the academic director of the Michael Lee-Chin Family Institute for Corporate Citizenship.

It's been two years since the Rana Plaza garment factory collapsed near Dhaka, Bangladesh, killing 1,129 low-wage workers. Six months before that calamity, 123 died in a factory fire in nearby Ashulia. After these catastrophes, many clothing retailers in Britain, the European Union, the United States and Canada announced their commitment to improving factory safety and the wages, employment rights and working conditions of Bangladeshi garment workers.

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A couple of weeks ago, victims of the Rana Plaza collapse launched mulitbillion-dollar class-action lawsuits in Toronto against Loblaw and in U.S. federal court against Wal-Mart, J.C. Penney, The Children's Place and the government of Bangladesh.

In light of these suits, we wondered how the retailers' commitments are being fulfilled. Are they able to control their supply chains and bring factories in Bangladesh up to standards more acceptable to their customers? Or does the interference of greedy job brokers and corrupt bureaucrats dilute their powers and prevent effective change? Are the branded companies still on the case, or have they lost interest?

First, the good news.

Companies have banded together. There are two groups working on the problem – the (predominantly European) Bangladesh Accord on Fire and Building Safety, which has 189 corporate members, and the (U.S.) Alliance for Bangladesh Worker Safety, which has 26 members. Between them, they have conducted inspections at 1,700 factories and found an average of 70 to 80 infractions per site. As well, the two organizations have identified 41 sites they said needed to be closed immediately.

Then there's the mixed news.

In April, 2014, a United Nations agency, the International Labour Organization, paid out $2-million (U.S.) through the Rana Plaza Claim Administration to 1,587 victims, about half the number of those who have made claims, with the remaining claimants receiving partial payments last November. Clothing retailers have promised $30-million and so far have paid $24-million into the fund, and by the end of last month, the ILO had paid out an additional $8-million.

In a few factories, workers have been allowed to join unions (a major shift from prior years), forming 300 active unions, up from seven in 2010. But just 15 collective agreements have been signed. The rate at which certifications have been rejected has gone from about 20 per cent to over 50 per cent since 2013. Managers often close large factories when workers unionize. In a report released immediately before the second anniversary of the Rana Plaza disaster, Human Rights Watch said union organizers are being threatened, fired and even assaulted.

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Although inspectors have reported finding safety hazards in all of the factories, the Bangladesh government has declined to close the most dangerous, pending remediation. And the estimated repair bills, ranging from $250,000 to $1-million per factory, are significant costs for factory owners of businesses with small margins and plenty of competitors ready to jump in. Retailers disagree about the criteria for closing factories and the payment of wages to suspended employees.

Factory owners now understand they must not demand extensive overtime from their workers, and they are concerned about violating the requirements of inspectors on this issue. However, many are meeting the inspectors' demands by training their employees to lie. "We know what to say when the buyer visits the factory," one worker told the Pittsburgh Post-Gazette. "'There is no excessive overtime, and there is no scolding [or] verbal abuse.'"

Finally there's the bad news.

The clothing manufacturing industry is structured so that building safety is an expensive frill. Even with low-interest loans from the World Bank's International Finance Corporation, progress is slow. Workers cannot afford the barest necessities of life without supplementing their wages with significant overtime income. European and North American consumers may not want to buy clothing whose labels have been found in the ruins of a collapsed factory, but they have not shifted in their demand for cheap T-shirts and jeans, leaving retail chains scrambling for the lowest-cost suppliers available.

The government of Bangladesh has not increased its capacity to protect workers' rights or to inspect buildings, and it hasn't passed living-wage laws. (A recent report calculated that supporting the most meagre lifestyle requires a monthly wage of 8,200 taka, about $110 U.S. The current minimum wage is about 5,300 taka.)

At least one other government has tried to step up the pressure. British MP and junior business minister Jenny Willott wrote to the British Retail Consortium, asking that they "produce examples of existing human rights reporting measures, in the fight to eliminate forced labour and dangerous working conditions."

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It remains up to the retailers. Only they have influence over the factory owners in Bangladesh. If they insist on change, it will happen. Factory owners who will not respond to the weak arm of Bangladeshi law will ensure that they comply with the demands of their contracts.

"The bottom line is the vast majority of factory owners have been absolutely co-operative throughout," said Alan Roberts, executive director, international operations, for the Bangladesh Accord. "They see this as a benefit to their industry."

After 24 months, there has been some change. But it is not yet a cascade, nor is it self-reinforcing. It will require constant vigilance from the likes of Primark, Loblaw and Wal-Mart. And it will require them to train their customers, so that those of us who might buy a $20 sweater should consider whether our willingness to pay might include the cost of safe factories and living wages.

For the foreseeable future, Bangladesh's economy, the lives of its workers and the viability of its garment industry are all in the hands of Western retailers and their marketing strategies. The billions of dollars' worth of lawsuits may be intended to keep their attention focused on the issues.

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