The Role of NGOs in Ameliorating Sweatshop‐like Conditions in the Global Supply Chain: The Case of Fair Labor Association (FLA), and Social Accountability International (SAI)

AuthorS. Prakash Sethi,Janet L. Rovenpor
Date01 March 2016
Published date01 March 2016
The Role of NGOs in
Ameliorating Sweatshop-like
Conditions in the Global
Supply Chain: The Case of Fair
Labor Association (FLA), and
Social Accountability
International (SAI)
Over the last 201years, globalization has made interna-
tional trade and investment more efficient and productive.
In the absence of coordinated global regulatory regimes, it
has also made multinational corporations (MNCs) imper-
vious to social concerns in the countries where they
operate. There is considerable debate in the academic,
political, and business arena as to the causes of the appa-
rently inequitable distribution of benefits between labor
and capital. Notwithstanding, the relative merits of this
S. Prakash Sethi is an University Distinguished Professor at One Bernard Baruch Way/Box
J-1034, Baruch College, CUNY, New York, NY. E-mail: Janet
L. Rovenpor is a Professor in the Managementand Marketing Department at Manhattan College,
4513 Manhattan CollegeParkway, Riverdale, NY. E-mail:
An earlier version of this paper was presented at the 26
Annual International Association of
Business and Society (IABS) Conference, Guanacaste, Costa Rica, March 12-15, 2015. Fund-
ing support for this research was provided by the Weissman Center for International Business,
Zicklin School of Business, Baruch College/CUNY, One Bernard Baruch Way, NY, NY, 10010,
and is gratefully acknowledged.
C2016 Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc.,
350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.
Business and Society Review 121:1 5–36
debate, and facing tremendous societal pressure, compa-
nies have adopted voluntary codes of conduct to ensure
that workers making products for them in poor and devel-
oping countries are protected from hazardous working
conditions and receive wages that meet local laws and
market conditions. These codes, however, suffer from a
lack of credibility and proof of substantive compliance. A
new type of nongovernmental organization (NGO) has
emerged that monitors a company’s compliance with pre-
specified standards and provides assurance to the exter-
nal stakeholders that the company has fulfilled its
voluntary obligations. From an historical perspective, this
has been an innovative phenomenon where the monitor-
ing organization purports to act as an honest broker to
ensure all concerned that the company/industry has ful-
filled its obligations. In this article, we undertake a thor-
ough examination of two such organizations, that is, Fair
Labor Association, and Social Accountability Interna-
tional, that have played a pioneering role in bridging the
gap between societal expectations and corporate perform-
ance. We examine their governance structures, operating
procedures, monitoring standards, and public disclosure
of findings, and above all, their success in improving the
level of corporate compliance with their self-created codes
or standards. Unfortunately, our findings and conclu-
sions are disappointing. In our view, the two groups have
mostly failed to meet their avowed goals. Rather than
using their NGO status to help companies improve their
code compliance, they have suffered from managerial cap-
ture and have been reduced to corporate apologists.
There is considerable data in the scholarly and professional
publications—as well as mass media—as to the pervasive-
ness of unsafe, and quite often inhumane treatment of
workers, coupled with subsistence in most low-wage countries
around the world.
While these conditions are generally associated
with garment, toys, and other low-skill, labor-intensive industries,
they are just as likely to be in high-tech assembly-lines where a
disregard for environmental hazards, lack of worker safety, low
wages, and employment of minors, can still provide tremendous
opportunities for above-normal prof‌its.
For similar reasons,
unsafe employment practices can be found in massive infra-
structure projects, for example, roads, bridges, and dam construc-
tion, and, mining, to name a few.
Another core issue of public policy challenges is the attribution
or causation of these problems. To wit, whether these conditions
are the inevitable f‌irst wrung on the ladder of economic growth and
development—as shown in the history of countries that currently
top the list of wealthy nations.
Prominent economists, including
Paul Krugman and Jeffrey D. Sachs, have argued that the exploita-
tion of labor enables developing nations to increase their export
volumes and improve their stagnant economies which in turn will
create more jobs, result in tight labor market conditions, and, ulti-
mately, force MNCs to raise wages to attract workers.
While, his-
torically, this process of economic growth took over 100 years in
the United States, it has been accelerated in current times in other
places because of the ability to export large amounts of capital and
technology to poor countries.
Alternately, an equally plausible question would be to challenge
the validity of these assertions by arguing that we must learn from
this history and avoid its repetition.
There have been too many
devastating industrial accidents, such as the 2013 collapse of the
Rana Plaza building near Dhaka, Bangladesh, which killed 1,127
workers, to ignore the adverse consequences of globalization for
human rights and well being. Critics of classic economic theory
argue that even if substandard labor practices result in economic
growth in developing nations, workers cannot be subjected to
extended periods of backbreaking or mind-numbing labor that put
their health at risk, even if they had previously agreed to the terms
of their employment.
The economic and business case for sweatshops can be suc-
cinctly stated in amoral terms. MNCs manufacture and buy prod-
ucts from countries with lowest cost—composed of wages, working
conditions, and labor productivity versus capital usage, and gov-
ernment regulation—or lack thereof—to benef‌it corporations
through creating negative externalities.
The classical model of

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