Peeling the Apple
Elise is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When you peel an apple, you are privileged to see something no one else on Earth has ever seen before: the inside of that apple.
On Friday, Apple (NASDAQ: AAPL) did something unprecedented: they not only revealed a list of the suppliers of 97% of its procurement expenditures (something corporate spies are probably paid to find!), but they also published the results of 229 audits in the areas of Labor and Human Rights, Worker Health and Safety, Environmental Impact, Ethics, Mangement Systems and Worker Education and Development.
It’s dramatic reading. For example:
child labor (on average, 97% of the facilities were in compliance): 5 facilities engaged in underage labor due to insufficient controls on verifying age or the veracity of documents. The suppliers were required to support the young workers’ return to school and to improve management practices to prevent recurrences.
wages and benefits (69% compliance): 67 facilities used deductions from wages as a disciplinary measure. 108 facilities did not pay overtime wages as required by law and regulations. Apple required the facilities to repay due wages.
working hours (38% compliance): 93 facilities had more than half of their workers working more than 60 hours/week in at least one week out of the 12 samples. 90 facilities had workers working more than six consecutive days at least once per month. Apple required weekly tracking of working hours and provided training on factory planning to avoid excessive working hours.
prevention of involuntary labor (78% compliance): Apple terminated business with one supplier who practiced this and is correcting the practice of another supplier who did. 15 facilities hired indentured migrant labor (labor agencies hire contract workers from other countries at fees that can amount to many months’ wages). Apple limits recruitment fees to one month’s net wages and required suppliers to reimburse overpaid fees for all workers in their facilities, not just those assigned to Apple projects. $3.3 million was reimbursed.
antidiscrimiation (78% in compliance): 24 facilities conducted pregnancy tests and 56 facilities did not have policies in place that prohibit discrimination based on pregnancy; 18 facilities screened job candidates for hepatitis B. These screenings have been halted.
safe working conditions: Apple also detailed its commitment to safe working conditions and a mentally healthy work environment and they highlighted the employee assistance program (EAP) at the notorious Foxconn facility where, in 2010, 18 workers attempted suicide and 14 passed away. Steps were also taken to improve conditions at factories that handle combustible aluminum dust after an accident at another Foxconn factory where four employees lost their lives after an explosion of the combustible dust. All but one of those factories has implemented countermeasures to prevent such an accident in the future. The remaining one will remain closed until the modifications are made.
environmental conditions: A number of environmental violations were found and handled. The most egregious seem to be the handling of hazardous waste. 112 facilities were not properly handling hazardous chemicals and 69 were not recycling or disposing them as required by law. Apple had very serious concerns about four facilities and in all cases they immediately suspended business with the supplier until steps were taken to remedy the situation.
It is an unusual move for Apple, which has been notoriously close-lipped and it shows a dramatic shift by the new CEO, Tim Cook. Cook had been the Chief Operating Officer of Apple before taking the helm last year and he was in charge of the supply chain. He knows the issues intimately and his interest in improving these matters is credible.
It would be naive to think that Apple is alone in having suppliers like these. Foxconn, which has been described by Chinese labor scholars as a labor camp, has customers that include: Dell, HP, Motorola, Nokia, Sony etc. Apple was first tech company to join the Fair Labor Association, which works on monitoring and compliance of internationally recongized labor standards such as forced labor, child labor, discrimination, health and safety, freedom of association, and compensation.
Few want to look too closely at manufacturing in Asia. Even Dickens would shudder at how grim life is in these factories. Yet consumers have a voracious appetite for these products. The lines that form at US Apple stores when new products come out are newsworthy. The market in China is rapidly growing and last year accounted for $13B in revenue. Earlier on Friday, Apple had to halt the physical sale of iPhones in China out of concern for the safety of its customers. So many were eager for the 4S iPhone, that the crowd became angry and the Bejing store was pelted with eggs.
While the revelations in this report were eye-opening, the reality is that this represents an improvement over the past. There's a lot more to the report, including many details on how improvements are being implemented. Apple is aware that their revenues depend on their brand image and are not willing to sacrifice it to unfair practices at the suppliers.
It was a risk to go public with this information and some are already raising concerns about "morale at Apple" and how shareholders might respond. Share prices on Friday closed at $419.89 and after-hours trading has not been significant. This rare insight into Apple and the troubling labor conditions in Asia offers much food for thought. However one thing is clear, massive well-known corporations such as Apple have the potential to make real changes on the ground when they peel open their supply chain for the world to see.
As Martin Luther King, Jr. said, "Injustice anywhere is a threat to justice everywhere."
Motley Fool newsletter services recommend Apple. The Motley Fool owns shares of Apple.Elise has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.