A 13th employee of electronics-producing giant Foxconn has attempted suicide in 2010, according to the Associated Press. This follows a worker leaping to his death on Wednesday, even as Foxconn’s CEO led a tour of its facility, AP’s William Foreman reports.
While few Americans had probably heard of Foxconn before this recent spate of tragedies, its products are among the most familiar in the world. Apple, Dell, Hewlett-Packard and Sony are among the firms whose electronic devices are built by Foxconn’s more than 700,000 employees. And the firm’s environmental, social and governance (ESG) practices have been studied in detail by labor rights groups and other researchers, including the RiskMetrics ESG Analytics team.
According to ESG Analyst Meggin Thwing Eastman, Foxconn scores poorly in RiskMetrics IVA and Global Socrates evaluations. Company profiles for Dell and other Foxconn customers also flag the firm’s ongoing working-conditions problems. Among other issues, workers reported working 10-12 hours every day with only four scheduled days off per month, and many only got one.
Foxconn and its Taiwanese parent, Hon Hai, also scores poorly on other ESG metrics, including its management of chemicals, its energy use, and its handling of industrial waste products. ESG Analyst Sam Block notes that of 23 electronic component manufacturers in the IVA Electronic Equipment and Instruments sector, Foxconn was the lowest scoring company. [For more of the historical ESG record of all of the firms mentioned here, please click here to get access to the RiskMetrics ESG database.]
As Ms. Eastman explains below, calling attention to problems in the modern global supply chain doesn’t ensure that these issues will be addressed. While retail apparel firms have responded to consumer and investor pressure by pushing their suppliers to improve working conditions, such tactics may not work for the electronics sector:
The electronics supply chain differs from that of other consumer sectors – such as apparel, toys and simple housewares – for the simple reason that electronics are complicated, and proprietary.
A US company selling t-shirts, for example, can choose from any number of suppliers around the world. But Apple’s entire business model is built around the uniqueness of its products. This helps it charge a premium at the retail level, but it also gives its suppliers more leverage at the wholesale level. In order to produce iPhones, Foxconn/Hon Hai has committed a tremendous amount of its own resources – human, material and financial.
Even if Apple wanted to purchase iPhones from some other firm, there’s no way to shift production without a huge interruption in the flow of finished products. In a market that churns as fast as consumer electronics, this is simply not an option.
And so massive integrated suppliers may have the upper hand in their bargaining with brand-name “OEM” companies. Even OEMs with extensive supply chain labor rights programs can’t necessarily demand improvements in working conditions.
Still, there may be a way out of this stalemate. While Foxconn’s market power may dwarf that of any one OEM customer, its fortunes are bound to those of the consumer electronics sector as a whole. Foxconn’s top five customers account for 93% of its business, according to its most recent annual report. If these companies presented a united front in demanding better labor practices, Foxconn may have to respond.
What are the prospects for such an effort? The biggest stumbling block is likely to be the issue of intellectual property rights. The recent drama surrounding a lost iPhone prototype seemed more like the story of a lost nuclear weapon than that of a misplaced gadget. In this environment, pressure from outside stakeholders, including governments, NGOs and investors, would seem the only way to force fierce competitors to work together on these issues.
“No one knows why these problems are coming to a head right now,” says Meggin Thwing Eastman. “But that doesn’t mean that these tragedies were entirely unpredictable. The historical record shows that some of the world’s most admired companies have effectively built poor labor practices into their business models. Now external pressure may force a change.”
ESG Analyst Linda-Eling Lee points out that this is new territory for investors, as well as suppliers. “Chinese contractors have, from a Western perspective, been anonymous and fairly interchangeable. Now that they hold such leverage in the marketplace, they’re attracting more scrutiny,” Ms. Lee says.
“Investor expectations for transparency, governance and ethical conduct, along with the intensity of media coverage, are catching these companies off guard. Their focus on cost, efficiency, and scale as a competitive advantage might have to shift to accommodate a fuller set of investor and consumer expectations.”