Wal-Mart Nixed Paying Bangladesh Suppliers to Fight Fire

At a meeting convened in 2011 to boost safety at Bangladesh garment factories, Wal-Mart Stores Inc. (WMT) made a call: paying suppliers more to help them upgrade their manufacturing facilities was too costly. 

The comments from a Wal-Mart sourcing director appear in minutes of the meeting, which was attended by more than a dozen retailers including Gap Inc. (GPS), Target Corp. and JC Penney Co.
Details of the meeting have emerged after a fire at a Bangladesh factory that made clothes for Wal-Mart and Sears Holdings Corp. killed more than 100 people last month. The blaze has renewed pressure on companies to improve working conditions in Bangladesh, where more than 700 garment workers have died since 2005, according to the International Labor Rights Forum, a Washington-based advocacy group.
At the April 2011 meeting in Dhaka, the Bangladesh capital, retailers discussed a contractually enforceable memorandum that would require them to pay Bangladesh factories prices high enough to cover costs of safety improvements. Sridevi Kalavakolanu, a Wal-Mart director of ethical sourcing, told attendees the company wouldn?t share the cost, according to Ineke Zeldenrust, international coordinator for the Clean Clothes Campaign, who attended the gathering. Kalavakolanu and her counterpart at Gap reiterated their position in a report folded into the meeting minutes, obtained by Bloomberg News.
?Specifically to the issue of any corrections on electrical and fire safety, we are talking about 4,500 factories, and in most cases very extensive and costly modifications would need to be undertaken to some factories,? they said in the document. ?It is not financially feasible for the brands to make such investments.?

PVH Signature

PVH Corp. (PVH), which owns the Tommy Hilfiger brand, and German retailer Tchibo signed the memorandum earlier this year. Gap had been in negotiations to sign the agreement.
The retailer eventually declined, objecting to higher prices, publicly disclosing Bangladesh factories and to making the memorandum contractually enforceable, said Scott Nova, executive director of the Washington-based Worker Rights Consortium, who attended the meeting.
Gap decided against signing the document in October, Bill Chandler, a spokesman, said in a telephone interview. He declined to discuss the negotiations.
?We made a good-faith effort to participate, and for any agreement to be successful, it has to be acceptable to many parties,? Chandler said. ?Our investment of time shows how committed we are.?

Gap Plan

In October, Gap outlined a four-part plan to make Bangladesh garment factories safer. It included hiring a chief fire safety inspector to inspect factories, giving suppliers as much as $20 million in capital to make safety improvements and working with the Bangladesh and U.S. governments as well as the International Labor Organization to ?promote comprehensive change.?
Kevin Gardner, a Wal-Mart spokesman, declined to discuss the Dhaka meeting or what was said there.
?We know that continued engagement is critical to ensure that reliable, proactive measures are in place to reduce the chance of factory fires,? he said.

Zeldenrust called Wal-Mart?s position ?shocking.?

?You know it is extremely important, and they say: ?There?s no way we?re going to pay for that,?? said Zeldenrust, whose Amsterdam-based organization pushes for improved working conditions in the global garment industry.

Foxconn Suicides

The Nov. 24 fire at the Tazreen Fashion Ltd. factory in the outskirts of Dhaka is being compared to such paradigm-shifting events as the suicides at Foxconn Technology Group, the Taiwan- based contract manufacturer that makes many of Apple Inc. (AAPL)?s products. After an outcry, the non-profit Fair Labor Association audited Foxconn factories in China, and the supplier vowed to make improvements.
Fifty percent of the Bangladesh?s garment factories don?t meet legally required work safety standards and those that have improved working conditions have done so under pressure from Western apparel makers, said Kalpona Akter, executive director of the Bangladesh Center for Worker Solidarity, a non- governmental organization founded by two former garment child workers to promote safer factories. Bangladesh?s labor law requires safety measures such as fire extinguishers and easily accessible exits at factories.

Living Hell

On Nov. 26, two days after the fatal fire at the Tazreen factory, Akter witnessed the aftermath of a blaze at a Dhaka garment warehouse. Workers were forced to climb down a bamboo pole because they couldn?t exit through the stairs, she said. Graffiti on a restroom wall at the warehouse read: ?Work here and your life is a living hell.?
Swan Group, which had operations at the building and says it has made garments for Foot Locker Inc. (FL), is in compliance with the workplace safety rules, said Feroz Kobir Prodhan, the company?s manager of administration, human resources and compliance. However, the actual building is not, he said.
Many companies rely on factory audits to ferret out safety violations, a process some academics question because factory managers often know when inspectors are coming. Inspectors, moreover, tend to overlook all but the most serious problems.
?Auditing is just an information-collecting process and a pretty imperfect one because how much are you going to see on your 1- or 2-day visit to the factory every six months?? said Richard Locke, a professor of political science and management at MIT Sloan School of Management in Cambridge, Massachusetts.

Useless Audits

Audits are useless when a contractor farms out the work to another firm without the company?s knowledge, said Timothy Lee, a former executive with Adidas AG, who has sourced apparel from Bangladesh. After the Nov. 24 fire, both Wal-Mart and Sears (SHLD) said they had fired unauthorized suppliers.
?A lot of factories, especially during peak time, tend to subcontract their work,? Lee said in a telephone interview. ?That?s a lot of times how they get in trouble.?
Ultimately, the Bangladesh government will have to start enforcing its owns laws, said Locke, who notes that working conditions improved in China once workers began protesting.
?I?m hopeful, if for no other reason that, if Bangladesh wants to attract foreign companies, it will do the same thing,? he said. ?Otherwise they are going to lose business.?
To contact the reporters on this story: Renee Dudley in New York at rdudley6@bloomberg.net; Arun Devnath in Dhaka at adevnath@bloomberg.net
To contact the editors responsible for this story: Robin Ajello at rajello@bloomberg.net; Stephanie Wong at swong139@bloomberg.net
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