A new California law will force retailers and manufacturers to disclose from 2012 how they guard against slavery and human trafficking throughout their supply chains, ratcheting up scrutiny over some of the largest U.S. corporations.
From January 1, about 3,200 major companies doing business or based in California, a list that includes Apple Inc and Gap Inc, will be required to disclose steps they take, if any, to ensure their suppliers and partners do not use forced labor.
Companies risk getting sued by the state attorney general if they flout that law. But experts say the real pressure will come from the court of public opinion: consumers who care about ethical working conditions and take an interest in how their favorite brands get made.
Major U.S. consumer companies that have already come under fire include Apple. A group of suicides at supplier Foxconn, which makes the iconic iPhone, raised questions about working conditions at plants in southern China.
Apple declined to comment on the new legislation.
The heightened scrutiny expected under the law, which applies to retailers and manufacturers in the state with over $100 million in global sales, is already spurring companies to take a closer look at practices they follow, and in some cases improve them, lawyers say.
It's a law that makes sure that companies who are aware of the issues, but could be managing them better, come to the realization that this is the moment where they better get a better handle on them, said Jon Sohn, a lawyer at McKenna, Long and Aldridge in Washington, DC.
Anything that can harm your brand should be taken seriously.
Child labor and slavery, broadly defined as forced labor, run rampant not just in emerging markets like Asia and Latin America, but also within developed economies such as the United States.
The U.S. Department of Labor says children and forced laborers produce 130 kinds of goods in 71 countries, numbers that have likely increased during the economic crisis.
Over 12 million people are victims of forced labor, according to the International Labor Organization.
The Coalition to Abolish Slavery & Trafficking, a group that helps human-trafficking victims in Los Angeles, often people working in restaurants and the beauty trade, co-sponsored the legislation and wants consumers to reward companies that do the most to prevent forced labor.
Companies following the policy and going beyond what is required should be congratulated, said Stephanie Richard, the coalition's policy director. We encourage people to support companies that utilize this law to reexamine their supply chains.
Justin Dillon, head of advocacy group slaveryfootprint.org, points to Apple and Gap as among the companies that have made major efforts to improve and communicate their policies following high-profile labor issues at their foreign suppliers and manufacturers.
The suicides at the plants associated with Apple cast a harsh spotlight on what critics dubbed a militaristic culture, pushing workers to the brink to meet unceasing demand for the Cupertino, California-based company's iPhones.
In response, Apple stepped up the number of supplier facilities it audits, to ensure they meet its code of conduct. Apple has also trained more workers in its supply chain beyond final assembly manufacturers about their rights under the Apple code of conduct.
Gap, whose apparel brands include The Gap, Banana Republic and Old Navy, over the past decade has been accused benefiting from sweatshops and child labor in Saipan and India.
Anxious to preserve its image, Gap has yanked clothing allegedly manufactured by children from its stores and stepped up monitoring of factories in its supply chain to make sure migrant workers are not forced to hand over their passports to managers or are otherwise coerced.
What the bill does is beg the question, Dillon said. That's great that that's what you're doing, but what more are you going to do?
Ahead of the new law, expected to largely affect the electronics and clothing industries, Silicon Valley companies including Intel and Agilent Technologies have posted documents on the Internet detailing their policies.
Intel said third-party audits of key suppliers cover slavery but not human trafficking, but it plans to specifically address human trafficking early next year.
CRISS-CROSSING THE WORLD
A drive to slash costs has quickened in tandem with global trade and industry competition in past decades. Increasingly complex supply chains that criss-cross the world make it harder for executives to scrutinize all the companies that have a hand in producing their products.
Under the new law, companies are required to describe the extent to which they verify risks of human trafficking and conduct independent and surprise audits of their suppliers.
They also have to disclose whether they force their suppliers to certify that the materials they use comply with laws regarding human trafficking and slavery, and whether employees receive training to reduce the risk of slavery.
The anti-slavery law has drawn comparisons to early greenhouse gas emission legislation in California, which began modestly but later drew more supporters and led to more aggressive regulation.
The new California law has already prompted a similar federal bill, introduced in Congress in August. That bipartisan legislation would force companies to disclose measures taken against human trafficking and child labor in reports to the Securities Exchange Commission as well as on their websites.
Keith Bishop, a partner at law firm Allen Matkins, said he advised companies directly affected by the new law, and then received a second wave of inquiries from many of those companies' suppliers. They wanted to know what measures to take to meet their customers' requirements.
The act, rather ingeniously, specifically regulates relatively few companies but impacts a very large number of companies, Bishop said.