Secrets, lies, and sweatshops

A recent visit by the compliance manager to a toy manufacturer in Shenzhen illustrated the crude ways that some suppliers conceal mistreatment. The manager recalls smelling strong paint fumes in the poorly ventilated and aging factory building. Young women employees were hunched over die-injection molds, using spray guns to paint storybook figurines. The compliance manager discovered a second workshop behind a locked door that a factory official initially refused to open but eventually did. In the back room, a young woman, who appeared to be under the legal working age of 16, tried to hide behind her co-workers on the production line, the visiting compliance manager says. The Chinese factory official admitted he was violating various work rules.

The situation in China is hard to keep in perspective. For all the shortcomings in factory conditions and oversight, even some critics say that workers' circumstances are improving overall. However compromised, pressure from multinationals has curbed some of the most egregious abuses by outside suppliers. Factories owned directly by such corporations as Motorola Inc. and General Electric Co. generally haven't been accused of mistreating their employees. And a booming economy and tightening labor supply in China have emboldened workers in some areas to demand better wages, frequently with success. Even so, many Chinese laborers, especially migrants from poor rural regions, still seek to work as many hours as possible, regardless of whether they are properly paid.

In this shifting, often murky environment, labor auditing has mushroomed into a multimillion-dollar industry. Internal corporate investigators and such global auditing agencies as Cal Safety Compliance, sgs of Switzerland, and Bureau Veritas of France operate a convoluted and uncoordinated oversight system. They follow varying corporate codes of conduct, resulting in some big Chinese factories having to post seven or eight different sets of rules. Some factories receive almost daily visits from inspection teams demanding payroll and production records, facility tours, and interviews with managers and workers. "McDonald's, Walt Disney, and Wal-Mart are doing thousands of audits a year that are not harmonized," says van Heerden of Fair Labor. Among factory managers, "audit fatigue sets in," he says.

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Some companies that thought they were making dramatic progress are discovering otherwise. A study commissioned by Nike last year covered 569 factories it uses in China and around the world that employ more than 300,000 workers. It found labor-code violations in every single one. Some factories "hide their work practices by maintaining two or even three sets of books," by coaching workers to "mislead auditors about their work hours, and by sending portions of production to unauthorized contractors where we have no oversight," the Nike study found.

The Fair Labor Association released its own study last November based on unannounced audits of 88 of its members' supplier factories in 18 countries. It found an average of 18 violations per factory, including excessive hours, underpayment of wages, health and safety problems, and worker harassment. The actual violation rate is probably higher, the FLA said, because "factory personnel have become sophisticated in concealing noncompliance related to wages. They often hide original documents and show monitors falsified books."

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