More than a decade after the Nike scandals of the late 1990s exposed terrible working conditions in the Asian factories where most of our stuff is made, has anything changed? To be sure, in the years since, most US brands — not just footwear and apparel companies like Nike, Timberland and Gap, but corporate giants like GE and Walmart — have assumed responsibility for human rights and environmental problems throughout their supply chains. But are conditions any better for the workers?

Those questions are front-page news these days, literally, in The New York Times, which has published two long and extraordinary stories about Apple and its supply chain in China. [See How the US Lost Out on iPhone Work and especially In China, Human Costs are built into an IPad.] The Apple-in-China story is also brought to life by Mr. Daisey and the Apple Factory, a lively, provocative episode of public radio’s This American Life, in which an actor-turned-reporter  named Mike Daisey investigates conditions at a Foxconn factory in Shenzhen. Together this reporting paints a shameful picture of harsh and unsafe working conditions at Apple suppliers: sometimes deadly safety issues, chemicals that scar people’s hands, 60-hour weeks, long stretches of work with no breaks, a rash of worker suicides, etc. To get some perspective, I spoke with Dan Viederman, the executive director of Verite, a nonprofit that helps companies build more humane and sustainable supply chains, and I’ve been reading my friend Adam Lashinsky’s excellent new book, Inside Apple.

Foxconn offers medical care on its campuses

For starters, let’s be clear: This is not an Apple problem. The focus of both The Times’ reporting and Mike Daisey’s story is Foxconn, which is said to be China’s biggest private employer and may be the world’s largest manufacturing company. It employs 1.2 million people (!) and assembles an estimated 40 percent of the world’s consumer electronics, for customers including Amazon, Dell, Hewlett-Packard, Nintendo, Nokia and Samsung, according to The Times. Part of a company called Hon Hai that is headquartered in Taiwan, Foxconn operates not just in Asia, but in the Czech Republic, Mexico and Brazil. It publishes a corporate social responsibility report and has US-based employees in Houston and Austin, TX.  Most Americans, of course, have never heard of Foxconn although they probably own something that was made by the company.

Nor is the problem of harsh, unsafe working conditions limited to Foxconn or even the electronics industry. Problems abound in the apparel and toy industries, too, as well as in mining, farming, fishing and construction. [See Walmart: A Bully Benefactor at Fortune.com for my story about Walmart's work to prevent  child labor on cotton farms in Uzbekistan]. Last summer, Nike admitted that “nearly two-thirds of the 168 factories making Converse products fail to meet Nike’s standards for contract manufacturers,” according to this story by Good Guide’s Dara O’Rourke, who as a graduate student working in Vietnam in 1997 turned a spotlight on Nike’s use of child labor.  In its most recent corporate-responsibility report, Gap says  that between 10 and 25% of its suppliers in south China don’t comply with child labor laws, don’t pay overtime as required and don’t provide one day off each week. I turned to Gap’s report not because they are a laggard but because, to their credit, they are a leader when it comes to being open about where their factory monitoring efforts are falling shorts. Other companies don’t say nearly as much about where their stuff is made, or how. The factories themselves are often walled off from NGOs and journalists. The result is that, for better or worse, most of our stuff is made in faraway places by people who are invisible to us. Can you find Shenzhen, a city of 14 million people (bigger than New York!) and the world’s manufacturing hub, on a map?

Apple CEO Tim Cook

As best as I can tell, Apple is no worse than most other companies when it comes to protecting the rights of workers in its factories. It may be better. In its sixth annual Supplier Responsibility Report released last month, Apple disclosed the names of its suppliers for the first time–but not the location of their factories. The company also became the first electronics firm to join the Fair Labor Association, a nonprofit group that works to improve conditions for workers. (Its other clients include Nike.) In an email to employees, Apple’s CEO Tim Cook wrote: “The FLA’s auditing team will have direct access to our supply chain and they will report their findings independently on their website.” They don’t, however, tie violations to particular factories.

In its report, Apple also said that it

dedicated additional resources to protecting the rights of workers who move from their home country to work in factories in another country. Many of these immigrants are charged exorbitant fees that drive them into debt, an industrywide problem that Apple discovered in 2008 and that we classify as involuntary labor. In 2010, we continued our search for these violations, auditing all of our production suppliers in Taiwan and many in Malaysia and Singapore. As a result of Apple’s audits and rigorous standards,
foreign workers have been reimbursed $3.4 million in recruitment fee overcharges since 2008.

This is significant because it’s a rare example of a US brand putting money in the pockets of overseas workers. “On the migrant labor issue, Apple is absolutely a leader,” says Dan Viederman of Verite. [Disclosure: Verite has worked with Apple and my wife, Karen Schneider, is a board member of  Verite.] Others see Apple differently. A consultant for BSR (also know as Business for Social Responsibility) who declined to be identified told The Times that Apple refused to push Foxconn to try out a program where workers could have access to private “hotlines” to report abusive conditions.

The more fundamental problem is that Apple’s reporting doesn’t tell you much about what impact the company is having. Cook’s email, for example, says that Apple’s

Supplier Responsibility team led more than 200 audits at facilities throughout our supply chain last year. These audits make sure [emphasis added] that working conditions are safe and just..

But othey don’t. Suppliers are notorious for faking pay records and gaming the inspectors. And Apple’s track record makes clear that conditions are not safe and just.

Cook also boasts that Apple offers free continuing education programs at  factories in China, saying that “more than 60,000 workers have enrolled in classes to learn business, entrepreneurial skills or English.” But are they earning more money? Working fewer hours? Safer?

Dan Viederman

See the problem here? Apple and other companies are measuring their actions, and not their impact. There’s a big difference between the two.  It’s reason why we don’t know whether the people who make the iPad are better or worse off than those who make an HP printer or a Microsoft X-Box. “Companies report on their activities – audits conducted, training delivered – but don’t tell us what impact that effort has achieved for workers,” Dan says. “As a result, while companies are getting better at reporting on their activities, we don’t have a meaningful way to compare one company to another.” We’d know more if companies reported on the wages that workers are paid, the number of workplace injuries, turnover rates, environmental discharges and the like.

Those who follow these issues also tell me that workplace issues are not part of procurement at most companies. If suppliers had  to demonstrate that they provide ethical workplaces as a condition of doing business with a big US brand, companies might avoid embarrassment–and more important, make a difference in the lives of their workers.

Nicholas Kristof

Having said that, it’s worth remembering that globalization and the manufacturing jobs it has brought to Shenzhen have on balance been good for China and its people. Workers line up for jobs at Foxconn, as the Atlantic reported last week. No less a crusader for the rights of the global poor than Nicholas Kristof has said as much, most famously in a 2000 Times Magazine article called Two Cheers for Sweatshops.

More recently, Kristof, who lived in China, told This American Life that industrialization has

created massive employment opportunities, especially for young women, who frankly didn’t have a lot of alternatives. That tended to give women more clout within families, within the community….for many Chinese, the grimness of factories like Foxconn was better than the grimness of rice paddies.

If you’d prefer the opinion of a Nobel Prize-winning economist, here’s Paul Krugman, writing in Slate, back in 1997:

While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers.

It is not an edifying spectacle, but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful, but nonetheless significantly better.

What’s more, competition for workers — and the very beginnings of a labor movement — has also begun to  improve conditions in China’s factories. To retain workers, owners are said to be improving wages, working conditions and living conditions, albeit slowly.

But still.

My MacBookPro costs $1299.  My iPad2 retails for $499. I don’t even know how much my iPhone costs, and I don’t want to think about how many iPods, Nanos or shuffles I’ve bought for my family over the years. By selling premium-priced products and generating high margins, Apple was the US’s most valuable company–worth more than ExxonMobil, Microsoft and IBM, last time I checked. It’s holding $97 billion in cash and short-term securities.

Simple fairness dictates that more of that wealth should be shared with the workers in China who are making Apple products.

Today’s guest post comes from Stephen Viederman, the former president of the Jessie Smith Noyes Foundation and an expert on sustainable investing. Steve, who has worked in the foundation world for more than 25 years, defines sustainable investing is “future-oriented, risk-adjusted and opportunity-directed.”  This is also called socially-responsible or green investing.

Here’s the problem: Even foundations that aim to promote sustainability or social justice with their grants don’t see their investments as another tool to achieve that end. They don’t, in other words, put their money where their mouth is, or where their values are. Steve, by the way, is also the father of Dan Viederman, executive director of Verite, a human-rights nonprofit; evidently, working for the public good runs in the family. This essay was originally published by Inflection Point Capital Management, a new sustainability-driven asset management boutique led by the estimable Matthew Kiernan with offices in Toronto, London, New York and Melbourne.

Philanthropic foundations are like old-fashioned slot machines. They have one arm and are known for their occasional payout.

Although the term “mission-related investing” found its way into the lexicon of philanthropy decades ago, the finance committees of most foundations continue to manage their endowments like investment bankers. Their portfolios give no hint that they are institutions whose purpose is the public benefit. There is a chasm between mission – grantmaking – and investment. The logic of a synergy between the two has yet to take hold.

For example, number of reports circulated in the US and the UK in the last few years laid out ways that foundations can “win the war on climate.” The focus was entirely on grantmaking. None made any reference to the various ways that assets could be used to add value to their grantmaking.

My op-ed in the Chronicle of Philanthropy, pointing out the ways that assets could help “win the war” went unanswered by the authors of the reports and by foundations. Among the 25 biggest climate funders, very few have climate investments, and only one –the Jessie Smith Noyes Foundation — is an active shareowner on climate issues.

US philanthropy is a big enterprise with over $500 billion in assets. Unfortunately share ownership is not taken seriously. Investing to avoid predictable and preventable surprises is smart investing. Voting proxies and filing resolutions is an ownership obligation rarely exercised.

What I’m calling the Bermuda Triangle of foundation investing seems to swallow up discussions of assets as an instrument of change. On one side of the triangle is the board and investment committee; the second is the investment office; and the third is the consultant. Their views on finance, formed in the same business schools, see reality – the world as it is – as an externality, and intangible. Water availability and utilization, climate change, human rights, working conditions, diversity on boards are issues not factored into their investment decisions, which are made for the short-term, as if the future did not matter. In the foundation setting, as in their day jobs, their awareness is bounded by what they have learned with few incentives to change.

Little time is spent exploring new ideas, leading to what has been called “willful blindness.” And yet these same people after work and on weekends are often very eleemosynary, devoting their time and money to organizations seeking to remedy these issues. Vocation and avocation are split, as demonstrated by the philanthropy of Bill Gates and Warren Buffet. [Note from Marc: The LA Times highlighted the issue with respect to Gates in 2007. See Dark cloud over good works of Gates Foundation.)

Within the triangle outdated views of fiduciary duty prevail. The myth that mission-related investments will underperform remains pervasive. Maximizing alpha, the old-fashioned way, takes precedence over benefit to meet the public good, and to harmonizing investments and grantmaking.  In fact, these are complementary not conflicting activities. Michael Jensen and his colleagues at the Harvard Business School are studying organizational integrity, “that group’s or organization’s word being whole and complete.” The concept incorporates morality, ethics, and legality. Their model “reveals a causal link between integrity and increased performance, in whatever way one chooses to define performance (for example, quality of life, or value-creation for all entities).”

As president of the Jessie Smith Noyes Foundation in the early 90s I worked with my board to “reduce the dissonance” between our grantmaking and our asset management. We screened our portfolio, which was state-of-the-art at the time; filed a shareowner resolution with Intel in support of our grantee, the South West Organizing Project, as well as with other companies on environmental issues; voted all our proxies; and had our own social venture capital partnership seeking to invest in companies that were providing commercial solutions to the issues we were dealing with in our grantmaking. Our performance matched or exceeded the standard benchmarks we used to measure how were doing. And during the decade our payout averaged 7 percent each year, well above the IRS requirement.

Harmonizing mission and asset management, becoming whole, is an organizing concept to improve the practice of philanthropy. Though claiming integrity, foundations often fail the wholeness test. The pessimist sees the glass mostly empty, while the optimist sees it filling. The hopeful say change must occur, and it cannot come too soon.

–

Comments are welcome here. You can contact Stephen directly at s.viederman@gmail.com.

Modern-day slavery is not just about sex workers or poor people in faraway places.

Some farmworkers in the U.S., for all practical purposes, work as slaves.  Laborers  with few or no rights, working under inhumane conditions, typically far home, have produced such products as  blueberries, organic milk, personal computers or cell phones and garments imported from India, a new report says.

Consider:

An estimated 12 to 27 million people are victims of slavery, and other forms of forced labor around the world. In the United States alone, 10,000 or more people are being forced to work at any given time.

The report, called Help Wanted: Hiring, Human Trafficking and Modern-Day Slavery in the Global Economy (PDF for download, here),  was published by Verite, a non-profit based in Amherst, Mass., that monitors and reports on  labor rights abuses around the world. (It was funded by Humanity United, a nonprofit focused on peace and human rights started and chaired by Pam Omidyar.) Over the years, Verite has helped identify and clean up the supply chains of such global brands as Timberland, Gap, Levi Strauss, Apple, Disney and HP. I met with Verite’s executive director, Dan Viederman, last week in Washington to talk about the report, and what can be done to deal with slavery.

Dan Viederman

Dan, who is 46, explained to me that Verite has begun a initiative called Well Made to help companies, governments, investors and advocates deal with modern-day slavery. Companies, for examples, are given sets of questions to put to their suppliers. Shareholders are advised to bring pressure on companies they own.

Here it must be said that today’s slaves are not the equivalent of  those in 19th century America; in theory, at least, they have legal rights, at least in theory. In fact, many of the stories in the report come from workers who managed to escape dire conditions, on their own or with help.

But these modern-day slaves, who can be found in such places as Taiwan, the Persian Gulf, India, Malaysia and, yes, here in the U.S. of A., do have some experiences in in common with the American slaves who picked cotton in the antebellum South: They typically work far from where they grew up, they were trafficked from their homes to their workplaces by labor brokers (slave ships in the old days), and they don’t have the freedom or organize or look for work elsewhere.

This makes it relatively easy to uncover forced labor.

“The presence of foreign migrant workers is a significant indicator of exploitative labor conditions,” Dan told me. Many employers like to bring in workers from abroad. “You get a cheaper and more compliant workforce if you bring in people who don’t understand their legal rights and can’t turn to social support systems,” he said.

Because the migrant workers frequently pay recruitment and transportation fees to get jobs in faroff places, they can find themselves in what’s called “debt bondage.” They are bound to their new employer, sometimes because they need the money to pay debt, other times because they have traveled on a work visa that ties the migrant to a single employer.

Some labor brokers endeavor to act responsibly–the global company Manpower Inc. is an industry leader–but many are unscrupulous. “It’s by an large and unregulated industry,” Dan said.

The Verite report, which is extensive, looks at  four sectors and locales:

the migration of adults from India to the Gulf Cooperation Council (GCC) States of the Middle East for work in construction, infrastructure and the service sector; the migration of children and juveniles from the Indian interior to domestic apparel production hubs; the migration of adults from Guatemala, Mexico and Thailand to work in U.S. agriculture; and the migration of adults from the Philippines, Indonesia and Nepal to the Information Technology sector in Malaysia and Taiwan.

Verite’s Well Made website puts a human face on the problem.  Here’s an example of a worker who was trafficked from Guatemala to Georgia to Connecticut:

Fortunately, some governments and companies are paying attention. The U.S. State Department this month published its own report finding that more than 12 million people worldwide are victims of “trafficking in persons” — trapped in forced labor, bonded labor or prostitution. If you read deep into Apple’s corporate responsibility report, you find this dense but revealing passage:

Some of our suppliers work with third-party labor agencies to source workers from other countries. These agencies, in turn, may work through multiple subagencies: in the hiring country, the workers’ home country, and, in some cases, all the way back in the worker’s home village.

By the time the worker has paid all fees across these agencies, the total cost may equal many months’ wages and exceed legal limits—and many workers need to incur significant debt to pay these fees. Apple’s Code has always strictly prohibited all forms of involuntary labor. As such, we classify recruitment fee overcharges as a core violation of voluntary labor rights, and we require each supplier to reimburse overpaid fees. As a result of our audits and corrective actions, foreign workers have been reimbursed more than $2.2 million in recruitment fee overcharges over the past two years.

To Apple’s credit, it has not only required its suppliers to reimburse workers but issued a “standard for Prevention of Involuntary Labor, which limits recruitment fees to the equivalent of one month’s net wages.”

But Dan tells me: “Only a handful of companies are now paying attention to the problems of migrant workers.”

Sad to say, modern-day slavery can be very profitable. Labor brokers make a good living. The employers get a docile workforce and essentially outsource the job of recruiting and hiring people. Workers also can benefit, to a degree. Today’s New York Times has an excellent story about the impact of global migration which says, among other things, that

Migrants sent home $317 billion last year — three times the world’s total foreign aid. In at least seven countries, remittances account for more than a quarter of the gross domestic product.

Of course, if the workers had the freedom to move from one employer to another, or to organize themselves, they could obtain or negotiate higher wages and send even more money home.

The bottom line is that lots of the things we consume and enjoy at low prices exact a high cost on others who are out of sight and out of mind.

Disclosure: My wife Karen Schneider recently joined the board of Verite, but since I’ve written about the organization’s work before (see this from 2006 and this from 2008), I see no reason to stop now.

Photo credit: Sandy Huffaker/Getty Images