Accenture: Living wage supply chain basic human right

05 August 2015 Consultancy.uk

Garment workers in Bangladesh make merely 0.6% of a €29-product in total earnings, well below the living wage, a recent report from Accenture and the World Economic Forum highlights. While a business case can be made for improving conditions, the report highlights that the human rights frameworks lay out an obligation on corporations to make sure every worker in their supply chain is paid a living wage, trumping other considerations.

The supply chains of multinational companies have the power to affect both the environment and local economies. These effects may be positive or negative, with market forces and the companies’ commitments to sustainable and ethical supply chains defining of the consequences. In their recently released report ‘Beyond Supply Chains Empowering Responsible Value Chains’, the World Economic Forum (WEF) and Accenture consider the business case as well as the ethical standards for sustainable supply chain management.

Sweating margins
The conceptualised phenomenon of sweatshops has been around since the 19th century and describes a subcontracting system in which the middlemen earns profits from the margin between the amount they received for a contract and the amount they pay to workers. Workers, who receive minimal wages for excessive hours working under unsanitary conditions, were said to have ‘sweated’ this margin.

Garment workers wages and their evolution

Today sweatshops are located far off shore, with particularly the ‘exploitation’ of garment production in Bangladesh still supporting the existence of the phenomenon. In an economic analysis, the research finds that garment workers in Bangladesh earn a mere 14% of the living wage*, with no change seen between 2001 and 2011. India has seen wages grow for garment from 20% in 2001 to 23% to 2011 – however, it will take a further 122 years before workers earn a living wage. China has seen the most sustained and real effects of globalisation, with a garment workers’ wage increasing from 16% of the living wage in 2001 to the 36% in 2011. This means that with sustained growth, in 12 years the average worker will enjoy a living wage.

Garment producers are not only failing to pay their workers a living wage, they also fail to pay the minimum wage as set by local authorities. In Bangladesh the minimum wage in set at 19%, however, the average worker earns 14% of the living wage. In India there is a disadvantage of 3% and in china of 10%. The below poverty wages that garment workers in Bangladesh (around 85% are women) are subjugated to, in often dangerous conditions, continues to be an issue faced by the lowest level workers in emerging markets.

Legal minimum wages

Recognising rights
The report highlights that “to break the status quo, companies and their sub-suppliers need to gain clarity on where ‘the buck stops’ when it comes to fair wages.” Governments and businesses need to set and comply with standards on basic conditions. While a business can be made to define a framework of standards, the report also considers the obligation placed on both governments and workers in terms of a framework that defines human rights. According to the researchers, earning a living wage is a human right under Article 23/3 of the Declaration of Human Rights: “Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.” The obligation is not merely on governments, with the UN Guiding Principles laying out a framework that defines the corporate responsibility to protect human rights.

In terms of the relation to supply chain management, the onus to protect human rights is in the hands of the corporation and not its sub-contractors. Corporations are committed to “seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.” As such, a garment brand is responsible for making sure the sub-contractors from whom they source products is treating their workers according to their human rights.

Share of T-Shirt value breakdown

Ability to pay
In terms of a breakdown of the share value of the products produced by workers, in this case a T-Shirt from Bangladesh sold in Germany, workers receive 0.6% of the price paid by the consumer. The factory (sub-contractor) ‘sweats’ 4% of the garment for itself, while the brand ‘sweats’ 12,5% as profit. The retailer takes 42.6% of the price. Without even increasing the sale price to further compensate the worker, there appears room within the breakdown to ‘reallocate’ some of the profit to the worker in line with human rights obligations on every part of the value chain of the product as a whole.

Other measures that may be taken to comply with the Declaration of Human Rights, is to make the supply chain transparent or to take the publicly commitment of working on the promotion of living wages towards realisation.

* Living wage as defined by the Asia Floor Wage: PPP $725 in 2013. Calculated for a worker to be able to support himself and either one adult or two children.

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Debenhams administrator handed legal threat from Sports Direct

24 April 2019 Consultancy.uk

Earlier in April 2019, the long-suffering high street entity of Debenhams finally collapsed into a pre-pack administration, wiping out equity for shareholders including Sports Direct. Now, Mike Ashley, the controversial owner of Sports Direct, has threatened legal action to remove FTI Consulting from its role as Debenhams’ administrators, following the obliteration of his stock in the company.

As the retail sector in the UK continues to endure a torrid period, British retail stalwart Debenhams endured a spectacular fall from grace. The high street ever-present was founded in the early 19th century, with a single store in London, before expanding to 178 locations across the UK, Ireland and Denmark. However, following a string of profit warnings and several rounds of lay-offs, the company engaged advisors from Big Four firm KPMG to consider its options in the Autumn of 2018.

At the time, Debenhams Chairman Sir Ian Cheshire insisted that the chain was not heading for insolvency, or that it was actively embarking on a company voluntary agreement (CVA). Nevertheless, Debenhams fell into administration in Spring 2019. The news saw Chad Griffin, Simon Kirkhope and Andrew Johnson of FTI Consulting appointed as joint administrators, immediately selling the retailer to a newly incorporated company controlled by secured lenders.

Debenhams administrator handed legal threat from Sports Direct

The pre-pack administration deal meant Debenhams was able to access significant additional funding, preserving 165 of its stores, though plans to close around 50 under-performing stores in the next three to five years remain in place. At the same time, the deal maintained its commercial relationships with suppliers, employees and pension holders. However, it also effectively led all of Debenhams’ previous shareholders – including the retail magnate Mike Ashley – to lose their equity.

Ashley’s Sports Direct firm had increased its stake in the department store chain in 2018, but stopped just short of the 30% stake which would require it to put in a formal offer to fully acquire the business. The transaction fuelled speculation that Ashley was waiting for the opportune time to acquire Debenhams, particularly in the wake of his swoop for House of Fraser. Ashley’s deal there enabled Sports Direct to buy the firm out of administration in a pre-pack deal, allowing the new ownership to controversially wash its hands of the company’s pension scheme in the process.

While some believed this was Ashley’s intent for Debenhams, FTI’s decision to sell the store to its creditors has instead resulted in a sizeable loss for Ashley. The hit of around £150 million from his loss in Debenhams comes after an analysis by The Sunday Telegraph suggested the tycoon had accrued “a sprawling web of stakes” in rival companies, and that he may be nursing losses of more than £500 million.

Bad press

Ashley – who recently lost a complaint ruling by British press regulator Ipso allowing the Times to note that he shared many characteristics with North Korean dictator Kim Jong-un – has been outspoken in his contempt for FTI since the news broke of Debenhams’ sale. The Sports Direct CEO has called for the resignation of FTI from its role as administrator, after his stake in the department store chain was wiped out. The Guardian stated that a letter to FTI saw Sports Direct’s lawyers even threaten legal action to remove the advisory firm as administrators because of a conflict of interests.

According to the reports, the document claimed, “[Sports Direct] will do everything available to it to unwind the damage caused to the company and other stakeholders (including large and small shareholders) by the events of today including but not limited to challenging the appointment [of FTI as administrators] and all consequences of it.”

The letter allegedly claims that FTI had been involved with Debenhams since the second week of February, and had engaged with the group’s lenders. The legal team reportedly suggested that this would consistute a conflict of interest, because FTI sold the retailer’s operating companies to the same lenders via a pre-pack administration.

This comes weeks after Sports Direct was itself accused of becoming overly cosy with a professional services firm, which has seen its auditor Grant Thornton placed under scrutiny for its continued role with the firm. In 2018, it was reported that Grant Thornton was set to stand aside from the role due to competition rules. It had held the role since before Sports Direct floated on the London Stock Exchange in 2007, while Phil Westerman, the Partner at Grant Thornton responsible for signing off Sports Direct's accounts, had himself undertaken the work for five years. 

Neither situation is understood to have changed, leading to the questioning of the independence of Grant Thornton’s auditing work with Sports Direct. Such is the level of bad press surrounding the retailer, that the Big Four of the accounting and advisory world – wary of incurring a new scandal of their own – are said to have ruled out taking the contract over.