What's the Value of "Certification"? It Depends.

Who will watch the watchmen?

It's a question that's been asked many times before, since at least the days of the Roman poet Juvenal, who is credited with coining the phrase.

It's as relevant as ever, with the news today that the Pakistani textile factory which exploded in flames last month, killing nearly 300 workers, had been awarded "independent" certification as meeting critical international standards.

As reported by Declan Walsh and Steven Greenhouse in today's New York Times (full article, here),

In August, two inspectors who visited the factory, Ali Enterprises in Karachi, to examine working conditions gave it a prestigious SA8000 certification, meaning it had met international standards in nine areas, including health and safety, child labor and minimum wages. The two inspectors were working on behalf of Social Accountability International, a nonprofit monitoring group based in New York that obtains much of its financing from corporations and relies on 21 affiliates around the world to do most of its inspections. 

The reporters call the Karachi fire a "huge embarrassment" to the monitoring system. Social Accountability International had not conducted the inspection itself, contracting the job out to an Italian firm, RINA (Registro Italiano Navale Group). According to a press release on the Social Accountability website, 

RINA has voluntarily suspended all SA8000 auditing activity in Pakistan. It is undertaking its own internal investigation and also seeking from local authorities clearer information about the circumstances surrounding this tragedy. In the coming days, SAAS will be rigorously following its own strict rules, and will be examining very closely the validity and effectiveness of RINA's audit and certification process.

That's all well and good, but I'm inclined to agree with Scott Nova, executive director of Worker Rights Consortium, quoted in the Times article as saying, "The whole system is flawed... This demonstrates, more clearly than ever, that corporate-funded monitoring systems like S.A.I. cannot and will not protect workers."

A key problem is that the initial audit -- which is what RINA conducted at the Ali Enterprises factory -- is not a surprise inspection (future inspections would normally not come with advance notice).

According to the Times  report,  "some surviving workers said that they had been warned of a visit by inspectors and coached to lie about their working conditions, under threat of dismissal."

To blame the disaster entirely on the S.A.I. audit and certification process would of course be grossly unfair.

On Monday, a two-person [Pakistani] government commission of inquiry started investigating the circumstances around the fire. It has already uncovered evidence of gross failings in Pakistan’s regulatory system, which is riddled with corruption, political interference and poor management. 

In circumstances like these, to expect a Western, corporate-financed "certificate" to solve the problems of workers' rights and safety would be beyond naive. But the "certificate" is unquestionably itself part of the problem. It relieves the end purchaser (retail seller and consumer alike) of having to ask the hard questions: How was this product made? If all health and safety issues are properly addressed, and workers' wages and benefits adequate, is it really possible to offer this item at so low a price? Who is benefiting, and who is being harmed? If I am complicit (and, by purchasing this item, I am complicit), how can I make things right?

Questions, questions. I've got so many questions. And so few good answers. Only prayers for the families and friends of those 300 workers.

Do You Really Want to Go Back to the Good Old Days of Deregulation?

"The towering metal door at the back of the burned-out garment factory could have been an escape for many of the low-paid textile workers caught in the fire.... Instead, it stands as a testament to greed and corruption at a factory where 289 trapped employees died."

This may sound like a description of the infamous Triangle Shirtwaist Factory fire of 1911. But it isn't. It's the opening paragraph from an article by Declan Walsh in today's New York Times, describing the scene after the deadliest accident in Pakistan's history.

His article continues,

As hundreds of workers scrambled to escape the flaming factory after a boiler explosion, they found the main sliding door -- 30 feet high, big enough for a truckload of cotton -- firmly locked. Instead of letting the workers escape, several survivors said Thursday, plant managers forced them to stay in order to save the company's stock: piles of stonewashed jeans, destined for Europe.

There was apparently only one open exit, through which employees could escape -- or they could jump from windows "considered too high to require bars." As a result, nearly half lost their lives, most often from smoke inhalation. Many of the survivors are in local hospitals, suffering from third-degree burns.

I wrote about the Triangle Shirtwaist fire a few years ago (post, here), and quoted labor activist Rose Schneiderman, who said, a few days after the disaster, "The life of men and women is so cheap and property is so sacred! There are so many of us for one job, it matters little if 140-odd are burned to death."

At the time, there were few laws protecting American workers. In contrast, the current laws protecting Pakistani workers are quite strong, "but application is notoriously weak. In textiles, which account for 53 percent of exports, employers routinely sidestep health and safety regulations through bribery and corruption."

Regular readers of this blog know that I am a _big_ supporter of regulation. Because the fire in Karachi is a terrible, tragic reminder of what the "good old days" were like. Regulations alone, of course, are not enough -- you need a strong rule of law, and plenty of alert inspectors on the job.

Why Pay More When You Can Collude?

Another in a long series of "we're shocked, shocked" headlines (this one from today's New York Times): "Equity Firms Like Bain Are Depicted as Colluding".

No, really? People do that? (Full article, here)

Reporters Eric Lichtblau and Peter Lattman write that court documents indicate that, for Bain Capital's "$32.1 billion purchase of the hospital giant HCA in 2006, competitors agreed privately to 'stand down' and not bid on the company as part of an understanding with Bain to divvy up companies targeted for leveraged buyouts."

At the time, the $32.1 billion purchase price for HCA was a record.

In another example, KKR and Silver Lake Partners brought Bain into their acquisition of Philips's semiconductor business, thanks to "a secret deal whereby Bain would permit KKR and Silver Lake to submit the winning bid and then invite Bain into its deal on equal terms."

The documents are from a lawsuit filed in Boston's Federal District Court against Bain and other firms "by shareholders who say the firms' bid-rigging artificially deflated the sales price of more than two dozen companies and cost them billions of dollars."


The documents were made public, although with heavy redactions, following a motion brought by the Times.

A lawyer for the plaintiffs was quoted as saying, "I think you can tell...there is enough to show that there was very active collusion going on between the leading private equity firms."

The equity firms' executives and lawyers deny that there was collusion to drive down prices. The Times reporters quote one (anonymous) executive: "These shareholders should be grateful that we purchased their companies when we did, right before the financial crisis hit."

Grateful's not exactly the adjective I'd use....

You Report Misbehavior. What's the Likelihood You'll Be the One to Pay?

Sadly, it's pretty high.

Consider, for a moment, what you would do if you observed unethical behavior in your workplace.

Would you report it immediately? Would you ignore it, because it's "just business"? Would you worry about possible blowback to you if you did report it?

If possible negative repercussions occurred to you, you're wise to worry.

Back in January, I noted that the 2011 National Business Ethics Survey (NBES) reported nearly half of all Americans had observed either legal or ethical violations at their workplace in the previous year. The good news was that it was nearly the lowest level reported.

The really good news, I said, was that about two-thirds of those who observed violations reported them.

But now the Ethics Resource Center, which conducts the NBES every other year, has issued a supplemental report, with some really bad news. According to their press release:

Retaliation against workplace whistleblowers is rising dramatically, extending to previously safe groups such as senior managers and also including more acts of physical violence...

Of those who reported misconduct, more than one in five reported some form of retaliation, up from 15% in 2009 and 12% in 2007.

 Since fear of retaliation is one of the most commonly cited reasons for not reporting illegal or unethical behavior, the rise in actual retaliation is doubly worrisome.

Remarkably, the greatest increase in reported retaliation rates occurred at higher levels of management (from fewer than one in ten of those reporting misconduct in 2009 to more than one in four in the most recent study). Moreover, according to the report,

Employees at higher management levels are more likely to experience traceable forms of retaliation. Traceable forms of retaliation are those that leave proof of having happened: physical harm, online harassment, harassment at home, job shift, demotion, cuts to hours or pay.

It's likely that these higher-level employees are reporting the most serious infractions.

The news isn't all bad, because there are clear ways for management to reduce the likelihood of retaliation:

...Ethics and compliance programs, strong ethical cultures, high standards of accountability that are consistently applied, and positive management behaviors are all linked to a reduced likelihood of experiencing retaliation.

The full ethics report and the new supplement are both available as free downloads at the Ethics Resource Center website, here.