Copyright 1999 The Economist Newspaper Ltd.

All rights reserved

The Economist

February 27, 1999, U.S. Edition

SECTION: Business, Finance and Science; BUSINESS; Pg. 62

LENGTH: 1364 words

HEADLINE: Business ethics. Sweatshop wars

ONE of the gravest threats to the thousands of western firms that buy or make goods in China is located at an address in Hong Kong's Kowloon. A scrap of paper behind the door grille identifies the tiny flat as the Asia Monitor Resource Center, perhaps the most influential watcher of working conditions in mainland China.

Two of the centre's recent reports have been on Disney and on China's toy industry. The Disney report, released by the Hong Kong Christian Industrial Committee on February 24th, alleges that some workers making Disney products are forced to work up to 16 hours a day, seven days a week and are paid almost no overtime. In the report on toys, four of the 12 plants singled out for criticism are subcontractors to Mattel, the world's largest toy maker. What have come to be known as "sweatshop Barbie" assembly lines are accused of a range of abuses,

from long hours and low pay to hea infringements.

Without independent activists the world would know much less about working conditions in the developing world. Multinationals have often been linked to factories that are grim by first-world standards.Yet the best-known multinationals, which have brands that are particularly vulnerable to criticism, have improved of late. Disney and

Mattel have done more than most other firms to improve working conditions in their Asian plants (most of them contractors or licensees), that make products under their name. Both have codes of conduct. Disney has carried out 10,000 inspections to date; the independent panel Mattel has set up to monitor its factories is considered a model in the industry, even by activists.

Thanks to its inspections, Disney last year cut off the Guo Nian Garment Factory, one of the four that were accused of abuses this week. Tri-S, which Asia Monitor singles out as one of the worst of Matt-el's suppliers, had for months been on the firm's "watch list" of factories that risk losing their contracts unless they improve. Indeed, Tri-S had already corrected most of its faults. Mattel says it is the only firm in China that has won "Social Accountability 8000", a certificate of workplace standards that Asia Monitor itself calls for.

The research for both the critical reports was based largely on the accounts of a few workers, or ex-workers, from each factory, who are interviewed on street corners. Fearful of spooking the workers, researchers do not take notes during interviews, but try instead to memorise their remarks. Because researchers do not check allegations

with firms or see inside the factory, even simple errors can be reported as fact. Workers often say, for instance, that they are not paid overtime, because they do not know that it is lumped into their monthly pay. And since workers with a gripe, or those who have recently been fired or who have quit, are more likely to talk, the interviews

distort the perceived extent of abuse.

A similar approach is used throughout Asia. Labour and human-rights groups in Europe and America, such as Global Exchange, based in San Francisco, rely on Asian activists, whom they often refuse to identify (to protect them from persecution). Some observers are critical. Locals "usually don't have the resources or skills to do a

thorough analysis," says one USAID official in Indonesia who works with them. According to Don Douglas, who runs a health programme in Jakarta, "my impressions differ quite a bit from what I read from the critics. My sense is that a lot of this is driven by US groups with an axe to grind. They risk sacrificing jobs for perfection."

In codes we trust

Multinationals' scrutiny of their own plants has improved a lot. Codes of conduct, which set out the standards a multinational expects of its factories and contractors, have evolved from vague promises into detailed rules troubles of Nike, a firm making sports goods that fell foul of the activists in 1997, speeded up this transformation,

as other multinationals scrambled to avoid similar boycotts. The best codes now tend to be monitor auditors. Companies realise that merely making promises risks adding hypocrisy to the list of charges against them.

But credible enforcement is not easily achieved, because western consumers understandably put more faith in the campaigners than in the multinationals. So firms have backed business-minded groups to design and oversee codes of conduct. Social Accountability 8000 is an independent certificate awarded by the Council on Economic Priorities, an interest group based in New York. The Apparel Industry Partnership, a group put together by the White House that includes activists and apparel firms, agreed in November to create an industry-wide code, although some campaigners have pulled out.

Thanks to such initiatives, auditors are doing a brisk business. Price-wat-er-house-Coop-ers (PWC) and Ernst & Young are the two largest. Body Shop teamed up with KPMG in January to get into the "social auditing" business. Deloitte is busy too. Even Kroll, an American investigative firm, performs SA-8000 audits. Only 18 months ago

ethical audits were rare, says James Warren, a partner in PWC's office in Guangzhou, China. But last year PWC conducted 1,500 inspections in Guangdong province alone, and the call for them is growing.

Local activists sometimes play a role in audits. Nike, for example, has said it will allow them to inspect all its plants. At the same time, the firm has raised salaries of workers hurt by currency devaluation and is increasing the minimum working age to 18, as well as switching to less toxic glues and other chemicals. The third annual "Protest

Nike" day was supposedly staged last October; but, unlike in previous years, no demonstrators turned up at the Nike Town megastores. Da research associate for the Transnational Resource & Action Center who has been a critic of Nike's Vietnam factories, says that relations with the firm are much improved.

Mattel has also worked hard. Last year it set up a monitoring council, headed by Prakash Sethi, an academic, Murray Weid-en-baum, a former chairman of the White House Council of Economic Advisers, and Paul McCleary, former head of UNICEF and Save the Children. Starting this month, it will pay independent auditors to

visit its own factories and, eventually, those of its suppliers. Local activists will interview workers at the plants. Mattel will publish the findings, along with their responses and plans for improvement. Each factory will receive at least three visits a year.

The process is neither cheap nor easy (Mattel already has 60 of its people working on the programme, and the independent auditors will employ several times that number), but the company reckons that, as the largest toy maker, it is vulnerable to a Nike-like scandal. As Mr Sethi points out, even a modest boycott around Christmas would probably cost the company far more than its compliance programme.

Yet even the best corporate-ethics programme will not end complaints about cheap labour. Multinationals make things in Asia because wages are meagre by western standards--from $ 3 a day to as little as 30 cents. Although most factories have no shortage of applicants, that is not good enough for such activists as Medea Benjamin of Global Exchange. She wants a "fair living wage", which she defines as one that will support half the worker's family.This is hard to define. In expensive Guangdong, for instance, a worker's earnings would not support half a family, but many workers come from the Chinese interior and back home they would.

Copyright 1997 U.S. News & World Report

U.S. News & World Report

July 14, 1997

SECTION: BUSINESS & TECHNOLOGY; Pg. 45

LENGTH: 1427 words

HEADLINE: It's a divisive world after all

BYLINE: By Betsy Streisand; William Holstein

HIGHLIGHT:

BODY:

Attention job hunters: The Walt Disney Co. is looking for a corporate communications director. This "savvy individual," said an ad that ran recently in the Wall Street Journal, must, among other things, be able to "read between the lines" and "keep the company's core values in the eyes of shareholders and the general public." The right person for the position, according to Disney sources, could easily earn six figures.

Not long ago, keeping Disney's "core values" in front of the public might have been considered an undemanding job. But that was before the entertainment giant extended health benefits to the live-in partners of gay employees, prompting thousands of Southern Baptists to stage a boycott. It was before labor activists accused the company of using Haitian and Vietnamese sweatshops to manufacture its cute and cuddly merchandise (a charge it denies); before its Miramax Films unit released Priest, about a gay Roman Catholic cleric, and Trainspotting, about heroin addiction; before it tried to build a "historical" theme park next to a Civil War battleground; before it infuriated shareholders by rewarding its short-lived president, Michael Ovitz, with $ 100 million plus for one of the biggest

belly-flops in business history; and before it became the parent of ABC, home of Ellen, the sitcom that turned into a yearlong lesbian-coming-out party.

Disney may be the world's No. 2 entertainment company behind Time Warner. But because Americans seem to expect this company, above all others, to reflect their values, Disney is the No. 1 target for culture critics, the religious right, and activists defending everything from wild animals to Arab traditions. The latest attack is from the National Federation of the Blind, which urged Disney to halt production of a new Mr. Magoo movie on grounds that the myopic cartoon character is repugnant to blind people.

By now, Disney has learned to live with boycotts and protesters--which mostly means ignoring them publicly, then quietly making concessions after the flap dies down. Soon after the Priest controversy, for instance, a prominent Jesuit priest was appointed to the Disney board. And so far, protesters have generated lots of publicity but have had little impact on Disney's fortunes.

But that could change. "Right now, these are perception issues, but they could become bottom-line issues," says Tom Wolzien, entertainment analyst with Sanford C. Bernstein. Time Warner learned that lesson in 1995, when the controversy surrounding its gangsta rap label forced the firm to sell off its highly profitable stake in Interscope Records.

At the very least, the growing number of activists and conservative groups disgruntled with Disney underscores a difficult challenge facing the company, whose revenues are expected to reach $ 22 billion this year. For Disney to increase its earnings by 15 percent a year, which CEO Michael Eisner wants and Wall Street expects, it must

continue expanding into more lines of business. At the same time, the company must safeguard the wholesome image that is both the core of its identity and the source of its market strength. Parents looking for shortcuts in an increasingly crowded and complex entertainment world regard Disney as a trustworthy marker; it is a reputation

the company must not squander.

Yet even Eisner concedes that avoiding mishaps on all fronts is nearly impossible. "A company this big just can't monitor everything all the time," he said in an interview. "Some things are going to slip through the cracks." The latest row involved The Great Milenko, an obscenity-laced rap album by Insane Clown Posse, produced by

Disney's struggling Hollywood Records. In late June, just hours after the disk was released, Eisner broke music-industry precedent and recalled 100,000 CDs from stores. (Company spokesmen deny the move was connected to the Baptist boycott.)

Like other big firms with well-known brands, Disney is consumed with expanding its core businesses through "synergystic" brand extension, or putting the company logo where it seems to fit. So, the Disney Stores begat the Disney Gallery, retail outlets aimed at older consumers and Disney collectors; and the theme-park franchise will get a boost with Disney's Animal Kingdom, the largest park yet, due next year in Florida.

Disney is no longer just a brand or even a brand family. It has become a fully integrated brand dynasty, with nearly limitless possibilities for cross-promotion and growth. "If you don't have synergy, you have nothing but new products," says Eisner, noting that 90 percent of the company's $ 1.8 billion annual profit comes from the Disney brand. "If you have synergy, it goes on and on."

Everyone knows the mouse. An internal company study commissioned by Ovitz in 1995 during his brief tenure shows that any given Disney project, whether a new movie or a new cruise line, has the ability to catch the attention of Americans up to 425 million times in a three-month period through the company's theme parks, stores, films, TV programs, videos, games, and music or on the Internet. And that's without promotion on ABC, and before Disney pays a cent for advertising.

Strong brands benefit from what's known as the "multiplier effect," a kind of mutual reinforcement mechanism by which the Disney name, for example, strengthens everything that carries it and all that is carried by it strengthens the Disney name. Disney boosts The Lion King and The Lion King boosts Disney. Even better, the multiplier seems limited mostly to positive reinforcement, meaning successes are enhanced by their connections to strong brands and missteps are often less damaging than they might otherwise be.

That goes for products as well as PR problems. When Wolzien's brokerage conducted focus groups with conservative Christians around the time of the Priest flap to determine the threat to Disney's bottom line, many were very outspoken in their discontent with the company. "Yet, when forced to choose between their moral

convictions and depriving their kids of the Disney experience, Disney won out," says Wolzien, largely because of the strength of the Disney family franchise and the fact that parents could separate Miramax, the studio behind Priest, from Disney's mainstream offerings.

Maintaining a distinct identity is why Disney years ago created a separate unit for Touchstone Pictures, whose films are aimed at adults. (The Walt Disney Studios produce only G-rated movies.) Miramax, the "independent" studio behind Trainspotting and Pulp Fiction, makes its connections to the Magic Kingdom known only during Oscar season.

Separating the businesses that do not fit the image of family entertainment won't prevent disgruntled consumers or interest groups from making the connection. But by steadily increasing the size of Disney's brand-name ventures in relation to its other businesses, the company hopes to prevent its inevitably well-publicized missteps from doing much lasting damage. This strategy isn't likely to reduce another potential threat to the company's image: The growing impression that Disney is swallowing the culture whole.

Disney must manage its growth carefully. "If it's possible to have magic as a core value, Disney does, and they're losing it," says Marianne Jennings, director of the Lincoln Center for Applied Ethics at Arizona State University. "You simply can't continue at their growth rate without compromising your values." Eisner is aware that on bigness grounds alone, the company has put itself at a certain risk. "Being this big is absolutely the downside of the upside," he says. "But the Disney name is only good because we keep making products that are excellent."

Give that man a job in corporate communications.

Study Contests Micro-Lenders' Effectiveness

By MARLA DICKERSON, LEE ROMNEY, Times Staff Writers

Micro-lending programs reach a "tiny" number of the low-income entrepreneurs they

target and are burdened by operational inefficiencies, a three-year USC research

project has found.

A report on the findings, titled "Microcredit Programs in the U.S.: The Challenges of

Outreach and Sustainability," will be presented at a public policy conference in

Washington on Friday and published in this month's issue of the Harvard Business

Review.

Micro-lending programs have quadrupled in number over the last eight years and

gained popularity among policymakers as community development tools. Programs lend between $500 and $25,000 to spur small-business development. They generally target low-income individuals with the notion that entrepreneurship is a path out of poverty.

The USC study stresses that some micro-credit programs are indeed effective, but it

aims a harsh critique at them overall. Programs examined by researchers made an

average of just 25 loans per year--implying that only 10,000 borrowers are served

yearly nationwide--and most programs had difficulty finding credit-worthy applicants.

Many borrowers were not living below the poverty line and so did not demonstrate the

greatest need, the study found.

Furthermore, more than 30% of programs that were lending in 1996 had gone out

of business two years later, and the "vast majority" were dependent on external

subsidies. Recruiting by many programs was weak, they were slow to disburse funds,

and criteria to determine credit-worthiness were too conventional, the study found.

"We need to be cautious about advocating more loan programs--something that the

development community and policymakers have fallen in love with," said Nitin Bhatt,

executive director of USC's Business Expansion Network and the study's lead author.

"The money is [already] there. We have to figure out why the money is not being used."

Bhatt, public policy assistant professor Gary Painter and public policy associate

professor Shui-Yan Tang examined 16 California micro-credit programs, interviewed

300 Los Angeles-area micro-entrepreneurs and reviewed national studies highlighting

the industry's successes.

The U.S. industry was modeled 15 years ago on the Grameen Bank of Bangladesh.

That Third World program, along with Accion International in Latin America and BRI

Unit Desas in Indonesia, has seen near-perfect repayment rates by poor residents, who are traditionally considered terrible credit risks.

But many early micro-credit programs here failed to take into account competitive

pressures, higher costs, the need for business training and other complexities of the U.S. economy…

Now He's a Fearsome Force for Education

Former Ram great Deacon Jones is offering kids 'a way out' with scholarships and other programs offered by his charitable foundation.

By DIANE PUCIN

Deacon Jones loves football. As a player, he loved the hitting and the sweat, the

feeling of his helmet settling hard into the stomach of some poor quarterback.

Deacon Jones loves having been part of the Fearsome Foursome and the Los

Angeles Rams.

For it was football that got Jones out of the sweaty fields of central Florida, away

from the dead-end, segregated town of his childhood, away from poverty and

hopelessness, away from despair and uselessness. Football is why Jones lives with

Elizabeth, his wife, on top of a hill overlooking Anaheim, where he can look down on

birds drifting lazily in the sky.

And it is football, and the money it paid Deacon Jones and the fame it gave Deacon

Jones, that has allowed him to start the Deacon Jones Foundation.

And it is because of the Deacon Jones Foundation that a couple of 10th graders

from Inglewood go to school every day, study hard every afternoon and sleep well

every night knowing there will be a college scholarship for them and that there is

nothing, absolutely nothing they can't do or be.

The idea to help young men and women built momentum in Jones' head, relentlessly,

powerfully, until it exploded into this work Jones says he wants to do for the rest of his

life. Kind of the way it was when Jones aimed his body at a quarterback.

Jones knew what it was like to grow up poor and without goals. "If it wasn't for

football, I had no way out," Jones says. He is sitting on the deck of his home, shoes off, eyes scanning the surrounding hills. "I know what it's like to be a kid and to have no dreams. I didn't know anything but football because that's all there was for me to

know."

So Jones wants it to be different for kids now. "I want to do more than throw

money at a problem," he says. "I want to give more. My idea is to take kids and

introduce them to the world of dreams. I want to take these 10th graders and in seven

years show them what they can be in the world."

Nancy Sanchez, shy and smart, the oldest of six children whose family shares an old

three-bedroom, one-bathroom house with another family of four children, and Gregg

Taylor, engaging and smart, the oldest son of a single mother, are the foundation's first scholarship recipients.

The foundation works like this: It finds companies willing to "adopt" a particular

geographic region and fund two $100,000 scholarships. The scholarship winners get a computer, a $2,500 stake in the stock market and a trip to a Morgan Stanley Dean

Witter office in Beverly Hills, where volunteer investment counselors teach them how to invest their money. They also will get job training and introductions to CEOs through internships.

And then, as they graduate from high school, assuming that they have stayed out of

trouble, assuming they have kept up their grades and their commitment to doing

volunteer work in their community, Sanchez and Taylor will be given scholarships to the colleges of their choice…

Cal Living: School official returns to the 'hood' to do good

SHERRY PARMET, The (Riverside County)

Press-Enterprise

(11-03) 10:28 PST SAN BERNARDINO,

Calif. (AP) -- Ray Culberson calls it working the crowd.

As assistant principal at Pacific High School, he easily slips into his routine -- rapping a few lyrics with students, shaking hands, eyes darting back and forth taking inventory over the din of the campus quad during lunch.

``Hey dude, I'm glad you showed up to detention,'' he calls out to one teen. They knock fists, then shake hands.

He pauses by a bleached-blonde with a pierced chin.

``I didn't give you permission to do that,'' he tells her. She smirks.

One student sidles up to Culberson in a hushed voice to report that a rival gang member might be ``packing'' a weapon.

Culberson says that on a San Bernardino campus where black, Hispanic, white and Asian gangs rove, he would be a fool to box himself up in an office during lunch.

Culberson, 39, speaks from personal experience.

He climbed out of a life on the streets of San Bernardino as a drug dealer and a thief. A brother and some cousins went to prison.

He took another path -- college.

``I still can't believe I'm an assistant principal,'' he said. ``It makes me laugh. It's the biggest joke of all jokes. Even today I feel like I'm living in two different worlds.''

Culberson said his past connects him to the world his students come from. By sharing his own experiences, he hopes to rouse them out of their cycle of poverty and delinquency.

Freshman Brandy Cromwell said she's never met a school administrator quite like this one…