Disney taking heat over China

Author: Dawn Chmielewski, Los Angeles Times
Dated: 11 Mar 2008

http://www.mickeynews.com/News/DisplayPressRelease.asp_Q_id_E_3118Heat

A year after Walt Disney Co. banned Hao Wei Metal Plastic Manufactory as a supplier, Huang Renzhong got a job there sculpting melted globs of poly-resin into statuettes of Mickey Mouse, Donald Duck and Snow White.

Starting at 8 a.m., Huang regularly pulled 15-hour shifts. Sometimes he worked through the night in the dust-filled factory. Sometimes a month would pass before he had a day off. He said he was never compensated for overtime. When he demanded back pay, he said, the factory owner threatened to have him beaten up.

Huang and four co-workers sued the labor bureau in Shenzhen, scoring a victory when a court ruled that the bureau hadn’t properly considered their demand for more than $90,000 in unpaid wages. The ruling, and the five workers’ audacity, was extraordinary in China. The local press picked up the story.

t was only then, Disney executives said, that they learned that Hao Wei Metal Plastic Manufactory was still in the business of making Disney merchandise. Hao Wei ran afoul of the code of conduct that Disney asks manufacturers to follow, but the company was powerless, the executives said, because it was unaware.

If that seems implausible, consider the way Disney, like many other multinational corporations, has managed its international supply chain.

Licensing deals

Disney has agreements with 6,000 licensees that make their own production contracts with factories. Although Disney investigators conduct spot-check audits and the company keeps a database of 40,000 plants around the world to eliminate problematic suppliers, Disney must rely on its licensees to follow the rules — and to tell the truth about which plants have been hired to make Disney goods.

In the case of the Shenzhen factory, a Japanese licensee had hired it on the sly, said Mark Spears, Disney’s director of international labor standards, telling Disney that another plant was making the figurines.

To some labor-rights activists, Disney’s arm’s length dealings with manufacturers have given it an easy out, said Jenny Chan, chief coordinator of Hong Kong-based Students & Scholars Against Corporate Misbehavior, which is pressing Disney to change its policies with a campaign called Looking for Mickey Mouse’s Conscience.

“Whenever there are problems, Disney tends to shift the responsibility to its licensee,” said Chan, who wrote to Disney’s board asking that it open its outsourcing practices to more public scrutiny, timing the letter to arrive before last week’s annual shareholder meeting. “They just shift responsibility downward.”

At Disney, a $35.5-billion corporation that does business around the world, executives disputed Chan’s characterization. But Spears said the Hao Wei factory was something of a wake-up call for the company, which said last week that it planned to step up enforcement of its code of conduct.

“The tremendous growth of our business over the last several years requires us to further increase our efforts” to ensure the well-being of factory workers, he said. “Immediate steps” would be taken to “more effectively enforce our policies,” he said, declining to give specifics.

The pressure on multinational corporations that outsource to China has never been more intense since Chinese factories in the last year have been found to have been producing tainted — in some cases deadly — prescription drug ingredients, pet food and toys. Labor-rights activists have kept up the drumbeat.

“The brands, up until recently, have been able to say, ‘This is not our problem. We were lied to. We were deceived,’ ” said Mary E. Gallagher, an associate political science professor at the University of Michigan and an associate at its Center for Chinese Studies. “That’s getting less convincing over time. More and more activists are saying, “You’re responsible.’ ”

Unlike Nike Inc., Gap Inc. and a handful of other companies that have been praised by the labor-rights community, Disney doesn’t maintain long-term relationships with factories. It won’t identify factories that produce licensed merchandise, as does Nike, or follow the example of Gap, which provides an accounting of how many factories it inspects, for example, and the exact nature of working condition violations it discovers.

As a media company, Disney isn’t mainly in the business of manufacturing consumer products, and Spears said that put the company in a situation very different from Nike and Gap.

“We are a creative content company which licenses our intellectual property to other outside parties, who then use their supply chain to manufacture the product,” he said. “We’re not directly contracting, in virtually any case, with a factory. Our strong suit . . . is relying on influence.”

International supply chain challenges are hardly unique to Disney, and an array of multinationals have faced criticism from labor-rights activists for deplorable workplace conditions that have become infamous in China, where labor laws are seldom enforced and outside monitoring is easily undermined by bribery or by workers coached to provide the answers that monitors would want to hear.

Disney, activists said, hasn’t been singled out. Stephen Frost, a founder of Corporate Social Responsibility in Asia, a Hong Kong-based consulting and advocacy group of which Disney is a strategic partner, said no one company could be expected to transform China’s manufacturing sector.

“There’s a kind of strange arrogance in expecting Disney to fix this problem,” he said. “It should play a role, but the real action is going to take place when Chinese consumers and Chinese investors ask [Chinese companies] what American investors ask of Disney.”

Tales of troubles

Still, criticism of factories doing work for Disney has been harsh. Activist groups, in a series of reports since 1999, have highlighted alleged violations of Disney’s code of conduct and Chinese labor law at more than 30 factories. The reports detail forced overtime, mandatory seven-day workweeks, sub-minimum-wage salaries as low as 16� cents an hour, fetid, cramped factory dormitories and steep fines for infractions such as reporting five minutes late. Some reports quote workers saying that they endured verbal abuse and beatings and have been overcome by chemical and paint fumes in poorly ventilated shop floors, vomiting at their work stations.

Spears said Disney found the reports “quite valuable” in alerting the company to code-of-conduct breaches. “We do take action,” he said. China Labor Watch, a New York-based advocacy group, praised Disney, for instance, for its speed in stopping the use of child labor at a plant after Labor Watch wrote about it in August 2007. But to the frustration of labor activists, Disney has said that it can’t identify its licensees’ factories — which number in the thousands — for competitive reasons.

“We are dismayed that they have not issued a public report . . . grading the performance of their supply chain and providing summaries of major violations found in the factories and what they are doing to improve compliance,” said Conrad MacKerron, director of corporate social responsibility for the As You Sow Foundation, a shareholder advocacy group in San Francisco.

One path to a solution in China, Disney said, is Project Kaleidoscope. In 2002, Disney teamed with McDonald’s Corp. and eight faith-based, socially responsible and institutional investor groups — including As You Sow, the Interfaith Center on Corporate Responsibility and the Connecticut state treasurer’s office — to address recurring problems in factories. It tested new techniques at 10 pilot plants in China.

The goal is to “develop a system that can move us beyond the cat-and-mouse game of monitoring and develop systems that can be put in place in factories so that they can . . . adjust their behavior,” said Rev. David M. Schilling, director of global corporate accountability for the interfaith center.

An interim report in January 2005 said systems for measuring results at the 10 plants were in place. A final report, which Disney had said would be published in late 2005, has yet to come out.

People familiar with the situation said the report was delayed in part because of what happened in July 2006 at a pilot plant that produces Happy Meal toys for McDonald’s, which has exclusive restaurant industry marketing rights to Disney characters.

A clash between security guards and a worker, who reportedly had been fired for planning a strike, triggered what Chinese news accounts described as a riot in which 1,000 workers vandalized the Hengli Factory in China’s southern Guangdong province.

Li Qiang, executive director of China Labor Watch, said workers had complained of the sort of chronic workplace abuses Project Kaleidoscope was intended to address. They said that they worked 11 to 12 hours a day and that supervisors called upon security guards to beat them. Li said a follow-up investigation last summer showed that conditions at Hengli only slightly improved.

“Workers do not have to work as much overtime as before, the food quality is improved a little bit and management became less strict,” Li said. “But still I wouldn’t say it’s a good factory.”

Disney and other Project Kaleidoscope participants declined to comment, citing confidentiality agreements.

Last May, after Disney discovered that the Hao Wei plant in Shenzhen was producing Disney figurines, the company urged its Japanese licensee, Run’a, to work with Hao Wei management, Spears said. Disney had revoked Hao Wei’s authorization to make licensed products in 2001 after a history of compliance problems that Spears declined to detail. He said Disney’s relationship with Run’a was “under evaluation.”

Hao Wei closed its Shenzhen factory earlier this year and opened a new one in the city of Dongguan. A factory manager who asked to remain anonymous said the company had brought its wages into compliance with local law, was offering health insurance to employees and had made improvements to the cafeteria and dormitories.

In the case of Huang and his four co-workers, Spears said Disney could do nothing.

“For that small group that escalated into the court system, it actually took it out of our hands, to be able to address with management,” Spears said. “We had to simply watch it take its course.”

A 39-year-old father of two, Huang has been unemployed since February 2007. The ruling in favor of him and his colleagues is on appeal. It’s unclear when the case will be resolved.

“It seemed that we won, but in fact it was very ambiguous,” Huang said, sitting in a child’s chair in his two-room apartment and holding a statuette of Mickey as the sorcerer’s apprentice from “Fantasia.”

“The five of us didn’t receive anything,” he said. “Not a penny.”

Now, Huang said, he feared he and the others had been blacklisted.

“It will be really hard” to find new jobs, he said. “The government and factories, they are all connected and I guess no company dares to hire us again.”