News | Subscribe News

Inspections don’t work: Can Tau help make ethical labour profitable?

 
Blockupy Demonstration in Frankfurt

From a Blockupy demonstration in Frankfurt over cheap labour practices. Maybe capitalist structures fail when brands and retailers – Nike, Gap, Walmart – act as regulators, writing rules and meting out punishment. Photo: Sean Gallup/Getty

 

Powered by Guardian.co.ukThis article titled “Inspections don’t work: Can Tau help make ethical labour profitable?” was written by Marc Gunther, for theguardian.com on Wednesday 8th January 2014 16.00 UTC

After more than a decade of corporate investment in social responsibility programs, codes of conduct, teams of inspectors and public reporting – all of it intended to improve the working conditions of factories in poor countries – anyone paying attention knows the system isn’t working very well. The Tazreen factory fire and Rana Plaza building collapse in Bangladesh were poignant symbols of its failure.

Maybe it has failed because Western clothing brands and retailers – Nike, Gap, Walmart and the rest – have been behaving like regulators by writing rules and meting out punishment. At least, so argues Oliver Niedermaier, the founder and CEO of Tau Invesment Management. He advocates that businesses should instead try acting like capitalists, using markets and the potential of investment gains to reform their global supply chains.

Tau plans to raise $1bn to turn around factories in poor countries, beginning with the garment industry. Tau promises to deliver “improved transparency, greater dignity for workers, cleaner environments for communities, and enhanced performance and value for stakeholders”.

Niedermaier, who has been talking to brands, retailers and factory owners, says: “[It's a] capitalist solution to one of capitalism’s worst problems. We want to help them solve their problems with our money and expertise.”

It sounds exciting, but it must be said that, so far, Tau is more talk than action. Niedermaier spoke at the Clinton Global Initiative and the BSR annual conference (video of his talk is here) and we talked afterwards by phone. But Tau isn’t ready to disclose the names of retail partners or investors, and it hasn’t invested in a factory, yet. Transparency indeed.

Still, Niedermaier, who is 43, is the well-to-do former CEO of a global investor relations firm called DF King Worldwide, and was anointed a young global leader by the World Economic Forum. It was there that he met Ben Skinner, the senior vice president at Tau Investment, and an award-winning author and reporter. Skinner’s book, A Crime So Monstrous: Face-to-Face with Modern-Day Slavery exposed human trafficking and slave labour. Tau’s advisory board includes respected names including Terry Mollner, the co-founder of the Calvert social investing group, and Bruce Klatsky, the former CEO of the apparel company now known as PVH Corp.

Niedermaier’s plan is to bring capital, expertise and western-style management to upgrade garment factories. Bangladesh, which has about 5,000 factories that employ about 4 million people (in a country with 31m households), is an obvious place to start, and Niedermaier did say that Tau is working on a couple of pilot programs there.

His travels in the garment industry have persuaded him that turnaround opportunities are abundant. “You walk into these factories, and you don’t have to be Jack Welch to understand how inefficient they are”, he says. “The sewing machines are often from the 1960s … the lights are up about 25ft in the air, regular light bulbs, and they create a lot of heat.” Some use wasteful diesel generators. At one of factory being monitored by Tau, the owner ripped out an outdated boiler system and replaced it for $100,000; it generated $500,000 in annual water and energy savings.

Niedermaier says: “We believe that with the productivity gains we can achieve, we can pay double, triple the wages.” If Tau drives efficiency, creates safer workplaces (thus reducing the reputational risk for western buyers) and improves wages, its factories should be able to double their revenues and margins over time, he says. “Suddenly we have created a race to the top and maximum impact.”

Tau plans to acquire minority stakes in factories, and to be an active owner, not unlike other private equity firms. “Our business is transformation, and not investment,” Niedermaier says.

This approach makes sense, says Dionne Harrison of Impactt, an ethical-trade consultancy that has studied factory conditions in India and Bangladesh and is working with Tau. Harrison says, “there’s massive room for improvement” when it comes to quality, efficiency and human resources in the factories. “Tau can provide capital to take factories to the next level”, she says.

Niedermaier says he’s raising money from pension funds, high net-worth individuals and sovereign wealth funds. If he raises $1bn, that would be a minor miracle, given that his business model is untested and his experience in the supply chain business is limited. But he won’t need that much to get started, and a few early successes should attract more money. We can only hope that he’s onto something, because business as usual isn’t getting us where we need to go.

 

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.

Comments are closed.

Trending Posts

Jobs