Is Wal-Mart Neglecting Responsibilities in Bangladesh?

Dirty Money

Source: http://www.flickr.com/photos/76657755@N04/

In November 2012, a fashion factory on the outskirts of Dhaka, Bangladesh — a country surrounded on three sides by India, with the Bay of Bengal to its south — caught on fire, killing at least 117 people and injuring at least 200 more. The factory produced clothing for a wide array of organizations including the U.S. Marines, C&A (an international chain of retail clothing stores headquartered in Belgium), and Wal-Mart (NYSE:WMT).

The fire was the worst at any factory in the country, but the tragedy was overshadowed in April 2013, when the Rana Plaza, an eight-story commercial building also on the outskirts of Dhaka, collapsed, killing 1,129 people and injuring 2,500 more. The collapse is one of the worst garment-factory disasters in history.

Together, the events helped pull the international spotlight to Bangladesh, the second-largest clothing exporter in the world behind China, with as many as 3.6 million people employed in the industry. Victims of the disasters, advocacy groups, and the public have banded together to put pressure not just on the factory operators, but on the brands and retailers who keep them in business, to push for improved working conditions.

On Wednesday and Thursday of this week, the IndustriALL trade union (representing the factory workers) met with representatives of the major brands that had used the factories. The talks were chaired by the International Labour Organization in Geneva and the purpose of the talks was the reach some sort of settlement over damages. Taken together, IndustriALL was seeking about $36.4 million from the brands for a relief fund.

However, IndustriALL reported on Thursday that just nine out of the 29 brands invited showed up to the meeting.

IndustriALL Global Union Assistant General Secretary Monika Kemperle stated: “Consumers will be shocked that almost a half-year has passed since the Rana Plaza disaster with only one brand so far providing any compensation to the disaster’s victims. I respect those brands that came to these meetings. But I cannot understand brands that are not around the table.”

The brands that opted to attend are: on Marché, Camaieu, El Corte Ingles, Kik, Loblaw, Mascot, Matalan, Primark, and Store Twenty One.

The brands that did not attend are: Adler, Auchan, Benetton, C&A, Carrefour, Cato Corp, The Children’s Place, Dressbarn, Essenza, FTA International, Gueldenpfennig, Iconix Brand, Inditex, JC Penney, Kids Fashion Group, LPP, Mango, Manifattura Corona, NKD, Premier Clothing, PWT Group, Texman, and Wal-mart.

Wal-Mart’s decision not to attend has riled many observers, including UNI Global Union General Secretary Philip Jennings. Jennings said in the same statement:

“Walmart is the world’s largest retailer and one of the largest buyers from Bangladesh. They should be a leader in taking responsibility for their global supply chain. Once again Walmart had failed to make a commitment to the workers in Bangladesh who produce the millions of garments sold around the world at large profit.”

Wal-Mart, along with Sears (NASDAQ:SHLD), Gap (NYSE:GPS), and J.C. Penney (NYSE:JCP), have also been criticized for declining to sign a contractually enforceable memorandum that requires retailers to pay Bangladesh factories enough to cover the costs of safety improvements and prohibits them from hiring manufacturers whose clothing factories fail to meet safety standards.

The pact was negotiated by global worker-safety advocates and signed by Calvin Klein’s parent company, PVH Corp (NYSE:PVH), Hennes & Mauritz (HNNMY.PK), and 80 other, mostly European, retailers. Wal-Mart said it did not sign that agreement because it would expose them to unlimited liability and give workers’ unions too much power.

“This is the first serious step by the Bangladesh government taken over the last 10 years and the most important step by the brands and retailers to pay the real cost of production and ensure workers are safe,” Dara O’Rourke, a professor of environmental and labor policy at the University of California at Berkeley, told the Journal. But, because, “Wal-Mart, Gap, and other U.S. brands are glaringly absent and unless they step up, the agreement will have limited effect,” he added.

Instead of signing that pact, Wal-Mart, Gap, Target (NYSE:TGT), and more than a dozen other U.S. retailers worked out their own five-year plan to improve safety conditions, which will include an inspection of all factories used by their suppliers. This agreement has been called “a sham” by The Worker Rights Consortium — one group involved in the global pact.

“Under the Gap/Walmart scheme, the bottom line is limiting the brands’ and retailers’ costs,” Scott Nova, executive director of the organization, said in a statement see by the San Jose Mercury News. “They offer a program that mimics the accord rhetorically, but that omits the features that make an agreement meaningful.”

Wal-Mart’s sourcing is largely a public relations issue, and as such, it has implications for the company’s brand and therefore shareholder value. But there is also a larger issue at play. For discount retailers, growth hinges on their ability to make quality clothes cheaply, and increasing oversight of garment manufacturing could affect that business model, as Nova’s comments suggested.

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