Apple Supplier Responsibility Report: Transparency Good, Findings Bad

Let’s say you are in charge of a multi-billion computer and consumer electronic device company.  The company itself appears socially and environmentally responsible.

Although your company designs and develops these devices, manufacturing and production is outsourced to third party partners.  Social and environmental responsibility infractions come to light when auditing your supply chain.

What do you do?

Do you cut ties with the suppliers?  Or do you work with them to bring suppliers in line with your own code of conduct?

This is the dilemma that Apple has faced year after year with its outsourcing partners.  Apple details its most recent supplier compliance efforts in its Apple Supplier Responsibility 2011 Progress Report. The Apple Supplier Responsibility website states, “Apple requires suppliers to commit to our Supplier Code of Conduct as a condition of doing business with us.”

The Apple Supplier Code of Conduct incorporates the following areas: labor and human rights, health and safety, environmental impact, ethics, all with management commitment as the foundation.

It is great that Apple released this report, especially of their own volition. However, although their transparency is good, the findings of the report aren’t so good. Unfortunate findings include: underage labor, air emissions, and bribes, to name a few.  (For details, please see the report.)

To fix some of its supplier problems, Apple has a corrective action process cycle which includes an audit and a review of any violations. Afterward, it develops a corrective action plan and implements that very plan. Lastly, the company verifies completion of corrective actions, and the whole cycle starts again with another audit. In some instances, Apple works with the facility to make things better. In others, it severed business relationships.

Child labor is something that we frown upon.  Surprisingly, 49 underage workers were found across 9 facilities.  With these facilities, Apple “required the suppliers to support the young workers’ return to school and to improve their management systems—such as labor recruitment practices and age-verification procedures—to prevent recurrences.”

Furthermore, in another facility, 42 underage workers were discovered.  Although Apple required the similar corrective action, it was deemed that management of the facility was acting in bad faith.  The facility choose to overlook the issue and not address the problem.  In this case, Apple terminated business with this facility.

Clean air is something we all cherish, and it is something we are used to (more or less) in our neck of the woods.  However, some supplier facilities failed to monitor and control air emissions.  Apple’s corrective action was to require facilities to treat air emissions and to ensure compliance with the law by conducting regular inspections.  Rather than terminate business, it decided to work with this facility.

But sometimes, suppliers took things too far.  One facility in particular, repeatedly attempted to offer cash bribes to Apple’s third-party auditors, as to not report all the audit findings.  This violated a one of Apple’s core (pun not intended) ethic.  Apple followed suit by terminating business with this facility.

So, what do you think?  Did Apple do the right thing in working with some suppliers, but also saying enough is enough with others?  With calls of transparency from not only big corporations, but their supply chain, there are bound to be not so positive audits.

Transparency does not automatically mean that everything will be hunky dory.  Apple’s transparency is a testament to that.  There were “problems” and the Apple set out to fix those “problems” with its supply chain. Transparency is only part of the process, to ensure that progress is being made toward social and environmental responsibility.   I hope to see more progress in next years Apple Supplier Responsibility Progress Report.

Jonathan Mariano is an MBA candidate with the Presidio Graduate School in San Francisco, CA. His interests include the convergence between lean & green and pursuing free-market based sustainable solutions.