Chapter 13 – Adopting Codes of Conduct to Meet Your Corporate Social Responsibility (CSR)

What is a code of conduct and why should you care about it?

A code of conduct is a formal statement regulating the ethical standards that a transnational company upholds, and which will be applied to its production supplier or trade partners.

The adoption of codes covering an individual company’s activities often contains clauses measured against ILO (International Labour Organization) Conventions, in particular those concerned with respect for human rights at work.

Key Clauses to a Code of Conduct

Key clauses in the company codes often address seven major areas:

  1. No forced or bonded labor
  2. No child labor
  3. No discrimination in employment
  4. Living wages and benefits
  5. Normal working hours
  6. No hazards to safety and health
  7. A decent working environment

A few company codes also contain clauses about freedom of association and the right to collective bargaining.

It will be difficult for you to check for problems with labor rights violations during your factory visit. However, you must integrate these clauses into your Purchase Order P/O and address it during your discussions with the management.

Following are some details about Chinese Labor Law. Here you will find that it already covers all seven key clauses and more. Keep in mind that when you discuss these clauses with the factory you are merely referring to existing laws and nothing else.

PRC Labor Law and Reality

The 1995 PRC Labor Law is comprehensive, covering labor contracts, working hours, wages, worker safety, child labor, and labor disputes, among other subjects.

For example, the law currently mandates a maximum workweek of 40 hours. Minimum wages are established locally, and wages cannot be deducted or delayed without a reason. If employees work more than a 40 hour week, overtime pay is mandatory at fixed rates. Workers are guaranteed at least one day off every week. Working conditions are required to be safe and sanitary.

However, in practice, the rights of Chinese workers are routinely violated. Workers are often required to work far more than 40 hours a week, have few days off, are paid below the minimum wage, and are not paid the required overtime.

Some Chinese workers must pay a large sum of money as a “deposit” to their employer, and they may have to pay a “recruitment fee” in order to be hired. These payments can prevent workers from leaving jobs where their rights are violated. Physical abuse of workers, and dangerous working conditions, are also common.

The types of labor rights violations found in a Chinese factory may depend, to a degree, on the nature of the factory ownership and the size of the factory. Four broad types of enterprises exist in China today: private, state-owned, foreign-funded, and township-and-village enterprises.

Before the mid-1990s, there were clear differences between state-owned “socialist” factories and private sector factories. State owned factories offered lifetime employment, housing, and medical care. Private sector factories, on the other hand, provided little job security, low wages, and no fringe benefits. Today, competition and persistent government efforts to privatize state-owned firms has led all employers to offer less job security, fewer welfare benefits, and strict labor conditions.

Codes of conduct and inspections are unquestionably useful. But in China this code-inspection regime has been only partially successful, for several reasons:

  • Although China has an adequate labor law, it is poorly enforced
  • Codes imposed on factory owners raise costs, so owners have a financial incentive to ignore code requirements. Factory owners are becoming increasingly adept at circumventing inspections, through practices such as double bookkeeping and coaching of workers. As a result, inspectors are often deceived and “clean” audit reports often do not reflect reality.
  • China has a virtually inexhaustible supply of migrant workers, most of them are ignorant of their rights under Chinese law and are willing to work under any conditions without protest.
  • The Chinese government prohibits the existence of independent trade unions, leaving workers without representatives who can discuss violations with management. Workers who have tried to form independent unions or lead labor protests have been imprisoned.
  • Western companies’ sourcing practices can contribute to the problem. For example, large orders are placed with short deadlines, demanding the lowest possible prices, and orders are changed at the last minute. Factory owners are afraid of losing business if they refuse these orders. This leads to law violations to complete the order.
Table of Contents