Business Malpractice: Child Labor


Corporate Social Responsibility (CSR) has become an important factor in a corporation’s management thinking ever since it has gained significance in the minds of customers, shareholders, non-governmental organizations, governmental bodies and several other stakeholders. There are plenty of contesting views on this issue, the most important ones being the benefits and drawbacks for businesses taking CSR seriously, the difficulty of administering CSR for multinationals, the plight of companies originating in developing nations, and a basic perceived conflict of interest between business and societal issues, which is believed by some to be the responsibility of governments. CSR is the most pertinent today in the area of child labor due to the sheer injustice it causes ethically, economically, and often legally. I hope to highlight that it is crucial to address Corporate Social Responsibility, in a general sense and specifically in the realm of child labor in our rapidly globalizing world of today. And while it will require some adjustments to how most businesses work currently, it will eventually be beneficial to all stakeholders in companies.

There are some companies that shudder when they hear the term Corporate Social Responsibility; it is often seen as an inconvenience to business and a waste of time and resources that leads to a depreciation of the bottom line. This is a narrow-minded outlook; it does not take into account how business practices have changed over the past five decades or so. Various businesses have become far more interconnected as a result of the sheer increase in the volume of business transactions on a global scale. This, along with the fact that news and happenings around the world are accessible to many at unprecedented levels today has led to this uproar by people, shareholders and customers in particular, demanding corporations to behave ethically and in morally acceptable ways: “which stakeholders are internal and which are external to the organization is becoming an increasingly difficult question to answer” (Phillips and Caldwell). It is therefore the case that the large clothing manufacturer gets heavily criticized and boycotted for child labor malpractice when it is one of the suppliers of cotton in Uzbekistan, one of the many contracted by the company, who has forced children to quit school to handpick cotton all day at a miserable pay rate (International Labor Rights Forum). There is no way around it anymore – large multinationals can no longer say that it is the fault of one of their thousand suppliers.

Moreover, people all over the developed world, with the privilege of high labor standards and successful implementation of laws as well as the more educated in developing regions, are indoctrinated in the idea of basic human rights and freedoms, and it is unreasonable for a business to not adapt to this new social environment that demands ethical behavior from companies. This is highlighted in the case of Levi Strauss, Macy’s, Liz Claiborne, Eddie Bauer, Texaco and Amoco all pulling out of the repressive state of Myanmar in the nineties purely because “the (mounting criticism of their presence in the country) had made its way to their bottom line” (Spar). Indeed, this is shown in the fact that over the past four years, according to the International Labor Organization’s latest estimates (2006), the number of child laborers fell by eleven percent globally and the number of children in hazardous work has decreased by twenty-six percent. While this is definitely good progress, “there are still two hundred and eighteen million child laborers worldwide, one hundred and twenty six million of whom are engaged in hazardous work” (International Labor Organization). It is thus hypocritical to say that taking care of the community or labor laws is entirely up to individual governments in a day and age where individual businesses in an industry can collectively bring economies all over the world crashing down: “Nike is a large, powerful customer and is much larger and more powerful than its suppliers. Nike can practically dictate the standards and practices of its suppliers in developing nations” (Phillips and Caldwell). This highlights the power large multinationals have over their suppliers to put in place CSR strategies that so many of their shareholders and customers are demanding. There are of course, corporations not as big as Nike, but “all companies have some powers on some level to influence at least a certain amount” (Phillips and Caldwell). Companies that embrace CSR policies, ethical behavior and conduct “business with stakeholders on the basis of trust and corporation… will (be enabled) to achieve a competitive advantage, because they will develop lasting, productive relationships with these stakeholders” (McWilliams and Siegel). This can consequently cause plenty of opportunities for competitive advantage for companies in the same industry.

In order to get into the mindset of Corporate Social Responsibility, companies need to understand their priorities. Archie Carroll’s “pyramid of social responsibility” (Carroll) portrays an ideal series of priorities for companies. Companies should firstly focus on being profitable, what Carroll calls the company’s responsibility. Second the company should obey the law and play by the rules. Next, companies should have a sense of morals and do what is right, as he argues the “corporate integrity and ethical behavior go beyond mere compliance with laws and regulations” (Carroll). Finally, right at the top of the pyramid is this notion of being philanthropic, a good citizen and contributing to the community and improving the quality of life. It is important to realize that Carroll does not see this as a hierarchy where profits or the foundation of the pyramid should be prioritized over the law, being ethical or being a good citizen. The pyramid highlights that all the four layers should be carried out in conjunction, and that being ethical and philanthropic are components that should be considered just as important actions to be carried out by companies today as obeying the law. This suggests that CSR should be built into the culture of companies. In order to do this, managers in the corporation should be trained to behave in ways that promote this culture so it is ingrained within the employees in the organization, because that is only way CSR will be taken seriously by the company as a whole and it will be able to implement its CSR strategies in place around the world.

Once again to use Carroll’s theories shown in his article “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” there are three types of managers who deal differently with the four main types of stakeholders – the shareholders, employees, customers and the community. First is the immoral manager who, as the title suggests, is the worst kind there is; he or she is actively opposed to what is lawful and ethical and solely focuses on profitability. The immoral manager tries to conceal business happenings with the shareholders, and exploits employees, customers and the community. The amoral manager, whereas, holds ethics and the law in the same regard in business and often reserves ethics exclusively for their private lives. They treat employees and shareholders strictly as the law requires, focus more on management, less on customers and ignore the community altogether in decision making. Mitsubishi’s corporate website under corporate social responsibility for example, states that “suppliers shall not employ people under the minimum legal working age of the country in question” (Mitsubishi Corporation). This is very reminiscent of the amoral management style which considers laws enforced by the government and morals voluntarily applied by companies as equal. Lastly, the moral manager, or the ideal one, operates well under the law, wants to be profitable, and uses ethical principles in decision making. Short and long-term interests of shareholders are taken into consideration and transparency is stressed, employees are given their rights, customers are given full information and treated as equal partners and the goals of the community and the company are seen as mutual. The right way to go about implementing CSR in companies therefore is to treat shareholders, employees, customers and the community right. Shareholders should not be seen merely as financial tools, and it should be understood that they need to be involved in the happenings of the company in the long-run. Carroll suggests that they have the right to this and that the company only stands to benefit by being transparent to its shareholders. Transparency also needs to be extended to customers, as they will be able to see that the company is honest and ethical, which builds brand loyalty. Employees need to be given their rights within the company, because that will ensure that they follow and try their best to implement corporate strategies. Finally corporations and their communities can mutually benefit from sharing their goals, as Larry Palmer, president of the Inter-American Foundation put it, “prosperous communities are good for business… (as are) quality companies that care for their communities” (Green).

Corporations that are likely to attract child laborers in their manufacturing processes, anything from agricultural goods to tire manufacturing to soccer ball manufacturing, should be ready to adopt policies of corporate social responsibility in order to stop using children in their process chains. Indeed, the adoption of a strict no child labor policy in their businesses can lead to “building their brand reputation, mitigating risk or improving employee retention and productivity” (Green). After adopting these policies and using them on a day-to-day basis in decision making, there are two things corporations should do – first ban child labor from all their supply chains and secondly have other strategies in place to suppress child labor in the communities in which they operate. Both these solutions go hand-in-hand for larger transnational companies in particular for, as mentioned before, they are the ones that have the most power to enact this change and can cause their competitors to follow suit much faster. One company that is a prime example of this is the German pharmaceutical and chemical company, Bayer AG. Bayer CropScience in India has strived to prevent children from working in fields by implementing a ban on child labor, conducting routine checks in the cultivation areas, introducing vocational education centers to reintroduce children to schooling, raising awareness about the importance of education and the possibility of successfully using only adults in fields (Bayer AG). This is a remarkable feat by the company in a developing economy like India, with a large agricultural sector where is it almost a tradition for children to work in fields.

Other companies can follow suit in a similar fashion. Large multinationals, such as Nike mentioned previously have plenty of power that they can use to force their suppliers to stop using child labor. This will of course involve putting in place monitoring mechanisms so that the practice does not continue behind the corporation’s back. This could be challenging if the company is large and has thousands of suppliers. However, there are also countless NGOs in most developing nations who could be contacted to help in this process. Bayer, for example, even uses an independent auditor in conjunction with its routine checks. Small companies who may not have enough power to force suppliers to stop using child labor could switch to manufacturers that are already certified child labor free, or suppliers that larger companies have successfully forced to stop using child labor. However, the process of simply not using child labor is not enough. It is an easy and passive way out and sends a signal to customers and shareholders that the company is merely interested in saving its brand image. For this reason, other strategies need to be in place.

Indeed, “checks alone are not enough. An integrated approach is required to prevent child labor on a lasting basis” (Bayer AG). Implementing measures to prevent the future use of child labor by other companies is a way of including philanthropy as the business’s activity, going back to Carroll’s pyramid. This process requires providing schooling or incentives for schooling for the children, and helping adults understand that it is possible to sustain a household without having to send their children to work instead of school and the importance of schooling itself. There is a call within the EU for the government to require companies to set up strategies to contribute to society. However, this makes the notion of philanthropy legal, almost a checkbox that companies need to tick. This removes the competitive advantage that companies who practice this gain.

The populations in most developing nations, as we know are immense. The work that child laborers do can easily be done by adults. It is often argued that child laborers are integral to maintain the economies of developing nations, rapidly developing ones such as Brazil, India, and China is particular. However, in 2004, the International Program on the Elimination of Child Labor released a report that found that “the elimination of child labor and its replacement by universal education yields enormous economic benefits. Over the period 2001 to 2020, the total sum it would cost is estimated at 760 billion US dollars, while the benefits that accrue during this period are estimated at 5,106 billion US dollars” (Olsen). This highlights that there are clearly financial benefits along with all the social and economic ones to abolishing child labor.

In addition to banning child labor and implementing strategies to prevent it in the community, customers need to be targeted to inform them of what the company is doing to stop this practice. This is a way to strengthen the company’s brand image and increase its popularity and sales, while treating customers as “equal partners” (Carroll), as per the pyramid. In order to do this, companies adopting CSR policies to stop child labor in their business and dissuade it in the communities they operate in have to invest in advertising their efforts. Indeed, good public relations is key to raising awareness in the general population about what the corporation is doing to combat an activity like child labor. The Body Shop for example, tends to describe the causes they are undertaking on their products themselves and donate proceeds from them to the causes. They also use the internet, magazines and billboards copiously for this purpose. McWilliams and Siegel correctly point out in their article “Corporate Social Responsibility” that “advertising that provides information about CSR attributes can be used to build or sustain a reputation for quality, reliability, or honesty… by this implication, the product will be of high quality” (McWilliams and Siegel). It can be seen by looking at CSR embracing corporations such as The Body Shop, Starbucks Corporation and Vodafone, that all of them are seen as companies that provide superior quality products and services, proving McWilliams and Siegel’s point. In order to target their shareholder specifically and increase their transparency towards them, companies should also publish reports regarding “correct information… in terms of (their) value chain activities” (Phillips and Caldwell).

Now that we have established how to think of and implement corporate social responsibility successfully, there are some criticisms of CSR that need to be addressed. The main argument stated by skeptics who feel that the issue of child labor in developing nations is overblown is the one declared by Milton Friedman. In his 1962 book “Capitalism and Freedom,” Friedman states that “the only social responsibility for corporate executives was to maximize the income and wealth of their companies’ stockholders” (Green). He outlines that before the industrial revolution many children, now classified as child laborers, moved from farm work to factory work. Over time due to the rising of real wages, parents were able to afford sending their children to school instead of work and this was what brought about the decline of child labor in what are now developed nations. Professor Thomas DeGregori from the University of Houston alludes to this logic in an article published by the Cato Institute that “in poor countries like Bangladesh, working children are essential for survival in many families, as they were in our own heritage until the late 19th century” (DeGregori). Indeed, people often compare the industrial revolution to the situation now in most developing nations that are switching from largely agrarian societies to manufacturing ones. This logic suggests that the process of using child laborers is a natural process developing nations and should not be seen as something that needs to be fixed. However, the industrial revolution did not have nearly as much transnational trade as we have today; we did not have countries with millions upon millions of children under the age of fourteen working to produce soccer balls, fireworks, harvesting cotton, cocoa and tea, mining and quarrying gold, charcoal, diamonds and chrome for companies that have originated in countries where similar forms of child labor would not be tolerated. Also now we have child rights established in the global north and plenty of people over the entire world reading the news and being unwilling to stand for products and services that have led to the exploitation of children. Products and services using this form of labor are not as economically successful as they were during the industrial revolution. This thus defies the reason for children to work instead of going to school.

If anything, in this day and age where education is integral to success in the world, education is what should be stressed in developing countries and not working in factories for below minimum pay. Most developing nations have sizeable populations with a large proportion of them being children under the age of fifteen and most of these children being under the poverty line. For all these children to be working in sweat shops or fields is a preposterous proposition. They will be acquiring no useful skills from these jobs and will easily be replaced once they are older.  The only option they will have to sustain themselves is to beg; a trend commonly found in groups of people living in abject poverty is the numerous children they have. This is not only a result of poor sexual education but due to the logic that more children would lead to more income as they can be sent out to beg, be sex-workers, or work in sweat shops. These children will similarly not receive an education and repeat the mistakes of their parents. It is therefore a never ending cycle. The only way to put a stop to it is education; secondary education should be made mandatory and implemented by governments all over the world. Clearly, however, not all governments have been able to implement these laws. It is definitely not a corporation’s responsibility to step in for the government, but since it is in the detriment of their brand name nowadays to use it, they stand to gain from the abolishment of it. Companies that provide assistant to children in the communities they operate in to go to school also help them escape from more dangerous professions such as prostitution.

Child labor is no longer something to be overlooked as a predictable phenomenon in developing nations. It is a serious problem that will lead to a stagnation of economic growth and development if it is not stopped. And it is no longer the problem of the government; corporations using this labor are increasingly feeling the brunt of customers boycotting their products and services as their bottom lines fall. On the positive side, companies who work hard to avoid using child labor and help put a stop to it in their industries and the communities they operate in see a growth in brand loyalty and profits. People no longer have the same mindset they had during and prior to the industrial revolution, and it is about time businesses realized this.



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