LEVIS

Levi Strauss is one of the world's largest brand-name clothes manufacturers and also one
of the first international companies to adopt a corporate code of conduct to apply to all
contractors who manufacture and finish its products and to aid selection of which
countries in which to operate. The Code of Conduct has two parts:

1.Business partner terms of engagement: Levi Strauss uses these to select business
partners that follow workplace standards and practices consistent with its policies and to
help identify potential problems. In addition to meeting acceptable general ethical
standards, complying with all legal requirements and sharing Levi Strauss's commitment
to the environment and community involvement, Levi Strauss's business partners must
adhere to the following employment guidelines:

-Wages and benefits: business partners must comply with any applicable law and the
prevailing manufacturing and finishing industry practices.

-Working hours: partners must respect local legal limits on working hours and
preference will be given to those who operate less than a 60-hour working week. Levi
Strauss will not use partners that regularly require workers to work in excess of 60 hours.
Employees should also have at least one day off per week.

-Child labor: use of child labor is not permissible in any of the facilities of the business
partner. Workers must not be below 15 years of age or below the compulsory school age.

-Disciplinary practices: Levi Strauss will not use business partners who use corporal
punishment or other forms of physical or mental coercion.

-Prison/forced labor: no prison or forced labor is to be used by business partners nor

will Levi Strauss use or buy materials from companies using prison or forced labor.

-Freedom of association: the rights of workers to join unions and to bargain collectively
must be respected.

-Discrimination: while respecting cultural differences, Levi Strauss believes workers

should be employed on the basis of their ability to do their job

-Health and safety: Levi Strauss undertakes to use business partners who provide a safe
and healthy working environment and, where appropriate residential facilities

2.Country assessment guidelines: these are used to address broad issues beyond the
control of individual business and are intended to help Levi Strauss assess the degree to
which its global reputation and success may be exposed to unreasonable risk. It was an
adverse country assessment that caused Levi Strauss to cease its engagement in China in
the early 1990s, largely on human rights grounds - a decision that has subsequently been
reversed. In particular, the company assesses whether:
-the brand image will be adversely affected by the perception or image of a country
among customers;

-the health and safety of employees and their families will be exposed to unreasonable
risk;

-the human rights environment prevents the company from conducting business activities
in a manner consistent with the global guidelines and other company policies;

-the legal system prevents the company from adequately protecting trademarks,
investments or other commercial interests;

-the political, economic and social environment protects the company's commercial
interests and brand corporate image.

Levi Strauss is the example of the company that successfully combines doing business
and following ethical practices. As we see, the company code of ethics demonstrates that
Levi Strauss complies with the most labor norms and environmental standards; at the
same time such actions of the company do not have any negative impact upon its
business. On the contrary, since Levi Strauss has positive public image the customers
should be more attracted to its products.

Some of the other important ethical issues that the company should consider is bribery
and corruption. Bribery/corruption is not as clear-cut an issue as might first appear;
indeed it can be rather a grey area. In some cultures, it is regarded as perfectly normal to
give an official or host a gift. In others, only minimal value token gifts or no gifts at all
are allowed. A problem arises when it is the norm for a contract to be signed only after
the payment of a 'commission' to a key official or officials. Such circumstances place
international companies in a difficult position: without payment of these commissions,
the contract will not materialize and, if they do not make the payment, many other
companies will (although that is not an ethical justification for going ahead with the
commission). The position of the US is unequivocal about this: it regards all such
payments as bribes and, as such, they are both unethical and illegal. The Foreign Corrupt
Practices Law forbids US companies from making improper payments to foreign
governments, politicians or political parties to obtain or retain business. Therefore, the
only choice that American companies have regarding bribery is not to make any
payments regarded as bribes; otherwise, it can be considered that a company violates the
law.
Levi's is leaving China - Levi Strauss

One major American company, Levi Strauss, has gone against the grain. The company
has decided to end much of its business dealings in China because of what the company
called "pervasive human rights abuses."

Levi's announcement was greeted with both skepticism and bewilderment. Some claimed
the decision had nothing to do with ethics but was tied to profits and public relations.
Others were somewhat dumfounded by the announcement. As one hike executive put it,
"I can't figure it out. I have no idea what Levi's is doing" (Gull and Zukerman 1993).

Levi's involvement in China was not large. The company made purchases from 30
Chinese subcontractors who produced trousers and shirts, amounting to approximately
$50 million per year. In May 1993, Levi's announced that it would phase out these
operations over a period of several years, although the company would continue to
purchase fabric in China. However, Levi's did leave the door open if the situation
changed. As one Levi's executive stated, "Our hope is that conditions will change and
improve so that we can revisit our decision at some time in the future" (Carlton 1993).
Nevertheless, and just as important, the decision also meant that Levi's had indefinitely
postponed plans for more substantial direct investment.

Levi's decision to leave China was based on its shared values, which provides the
foundation for all the company's decision making. Since the mid-1980s, under the
leadership of CEO Robert Haas, Levi Strauss has redefined its business strategy. After
engineering a successful LBO in 1985, Haas decided to focus on a more value-centered
management that would emphasize social responsibility and employee rights. As Haas
stated, "Values drive the business" (Howard 1990). These values are spelled out in the
company's "aspirations statement," which serves as a guide for management and workers.

The aspirations statement points to the need for fair treatment and respect for all
employees, along with a safe and productive work environment, while always attempting
to close the gap between principles and practice. "People in accord with the bottom line,"
is the way one Levi's executive put it (Laabs 1992). The value focus has not hurt the
bottom line; Levi's continues to be a highly profitable company. Sales in 1993 set a
company record for the seventh consecutive year, and net income rose 36 percent over
the previous year.

These values do not apply to the U.S. alone, but to all Levi's employees around the world.
Levi's is a global corporation, now operating in more than 60 countries. Half of all the
company's starts and jeans are made abroad. One might suspect that cultural differences
could interfere with the global adoption of Levi's core values, but such does not appear to
be the case. Although Levi's tries to adjust to particular cultures, the company maintains
that there is widespread agreement about its values. This fact appears to support a
growing agreement among researchers that a global value consensus is emerging, much
of which focuses on individual rights.
Levi's decision to leave China was not made hastily. A company task force worked for
three years on developing guidelines for doing business abroad. Not surprisingly, the
standards developed reflect Levi's shared values. The standards, which became known as
the "Global Sourcing Guidelines," have two parts. The first is known as the "Business
Partner Terms of Engagement" and addresses specific workplace issues that Levi's
international business partners can control, such as safe working conditions, length of
work week, fair wages, respect for the environment, and prohibitions against child labor.
To add teeth to the guidelines, company inspectors make periodic surprise visits to job
sites around the globe. If violations are discovered, Levi's will either require that changes
be made or sever its relationship with a particular subcontractor. In this regard, the
company found no major violations of its workplace guidelines after making ten random
inspections of its Chinese subcontractors.

Although Levi's may have found working conditions acceptable, recent reports from
China regarding the rest of the apparel industry paint a different picture. For instance, in
Shenzhen, female sewing factory workers toil 12-hour days plus overtime and receive
only two days off per month. Pay is often below the legal minimum of 12 cents an hour.
Workers usually have no health care and no compensation for injury, although recently
passed legislation requires it. All this prompted the Chinese News Service to complain.
"Some foreign businessmen do not care about Chinese laws. They beat and swear at our
workers, treat them badly, and embezzle their wages," said the Pittsburgh Tribune-
Review ("In China Factory Hazards Abound" 1994). Apparently the Chinese government
is most upset with the behavior of businessmen from Hong Kong and Taiwan, who are
reportedly the worst culprits.

Safety conditions in such factories appear to be no better. There is little ventilation, for
windows are often sealed and barred to prevent robberies. Few of these factories even
have fire extinguishers, and even if a factory is cited for safety violations, bribes are
commonly paid to government officials to avoid fines and shutdowns. Besides bribes,
officials are also reluctant to enforce existing worker protection laws, for fear of scaring
off foreign investment.

Lack of safety concerns produced tragedy late in 1993. At the Zhili Handicraft Factory in
Shenzhen, 84 women were killed in a fire. Many were trampled to death as workers
scrambled to reach the one unlocked door--all the windows were barred. Earlier in the
year a fire at another Shenzhen sewing factory killed 61 workers. Events such as these
have spawned conflict. The Chinese government admits to 10,000 labor disputes in 1993
alone. However, any attempts by workers to organize independent unions are illegal, and
when they are discovered, arrests usually follow, indicating that the Chinese government
is still intolerant of any organized opposition.

The fact that Levi's did not find these kinds of sweatshop conditions present with its
subcontractors indicates that fair workplace standards are certainly possible, if American
multinationals demand and ensure that the standards are being followed.
Notwithstanding, Levi's has taken action against other business partners when their
standards were not being met. For example, the company withdrew from Saipan because
of worker abuse from a subcontractor. Levi's also threatened to withdraw from two
factories located in Bangladesh over the use of child labor, but changed its mind when the
practice was adjusted. In all, the company has severed its relationship with 30 business
partners and demanded changes from 120 others in various countries.

The situation in Bangladesh illustrates that Levi's is not inflexible when cultural
differences are involved. In Bangladesh it is legal to employ children under the age of 14.
Moreover, families are often dependent on these incomes for survival. Yet according to
Levi's guidelines, children under 14 should not be employed. Levi's did not want the
youths discharged, which would have hurt their families, but it didn't want them working
either. To make the situation palatable, Levi's worked out a compromise with the local
contractors in which the children would be paid while attending school but offered full-
time jobs once they turned 14.

The second part of the "Global Sourcing Guidelines" deals with country selection and
concerns larger issues that are beyond the control of Levi's business partners. Levi's
maintains that it is the only company that has adopted standards for country selection.
These guidelines focus on such things as political or social instability that could threaten
Levi's interests, a country's impact on brand image, dangers to company employees, and
human rights abuses. Violations of any or all of these guidelines can mean the cutting off
of all business relationships in a particular country.

For 19 days Levi's China policy group scrutinized the situation and finally concluded that
subcontracting in China had to be phased out. Human rights violations were widespread
and inconsistent with company values. A recent report by two human rights groups
(Human Rights Watch-Asia and Human Rights in China) indicates that violations in
China may be worse than previously thought, despite assurances from President Clinton
and others that the situation is improving. Specifically, the report claims that
approximately 500 more people were imprisoned as a result of Tiananmen Square than
previously reported, and that 200 are still being detained in extremely harsh conditions,
where torture and solitary confinement are commonplace. Moreover, the report states,
"Known cases of political and religious imprisonment in China represent only the tip of
the iceberg" ("Chinese Abuses Unveiled" 1994). Other reports indicate that in the first
four months of 1994 at least 88 arrests and trials of political or religious dissidents
occurred.

China is not the first country from which Levi's has withdrawn. It severed all
subcontractor relationships in Burma because of human rights abuses. And the company
suspended its business dealings in Peru because it felt that its employees were in danger
from terrorist activity by the Shining Path guerrillas. However, when the danger in Peru
subsided, Levi's lifted the suspension.

One inconsistency is apparent in Levi's China decision. Although the company is phasing
out its dealings with subcontractors who produce garments, it will continue to purchase
fabric in China. Why Levi's would continue to do so when it has stated that China has
failed to meet its "country selection" standards is puzzling. For its part, Levi's says that it
is reviewing the situation.

PROFIT OR PRINCIPLES

Critics of Levi's have charged that the decision to leave China was nothing more than a
publicity stunt aimed at luring more customers. They suggest that consumers will be
attracted to Levi's for its stand against human rights abuses while reinforcing the
company's "antiestablishment image." As one critic charged, "This was a pure business
decision related to bottom line profitability" (Miller 1993).

Levi's admitted that the decision could improve its image. Top management believes that
the brand is symbolic of American culture, so brand identity must be protected.
Moreover, it appears that strengthening its customer base was also a concern. As one
Levi's vice president put it, "Increasingly, consumers are sensitive to goods being made
under conditions not consistent with U.S. values and fairness" (Dumainc 1992). Although
the statement does seem to substantiate the charges of Levi's critics, it is more likely an
indication of the complexity of business decisions, which are seldom made on purely
ethical grounds. It would be naive to assume that financial considerations do not play
paramount roles.

Should it be concluded, then, that Levi's made the wrong decision about China, if it is
truly concerned about human rights and fair working conditions? I would argue that the
answer is no. If a privately held company, such as Levi's, believes that it cannot operate
in an environment without abrogating its values on which the organizational culture is
based, then it should withdraw. Besides the larger danger of eroding organizational
stability, Levi's believes that company values must be applied consistently. If not,
cynicism will emerge, making it less likely that individual employees will act ethically.