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Labour standards are crucial as supply chains grow

Home / Hermes EOS Blog / Labour standards are crucial as supply chains grow

Sachi Suzuki,
08 September 2014

Ensuring good labour standards and maintaining good relationships with employees is essential for the long-term success of a company. Failing to do so is not only likely to cause significant reputational damage to the company but can also lead to prolonged disputes between employees and management resulting in loss of production and/or difficulties in recruiting and maintaining workers.

Labour standards continue to be a challenge for many companies, particularly as the length of their supply chains grow and operations become more globalised. But what companies are expected to do to be in line with the widely-supported core principles of the International Labour Organisation’s conventions is clear – refrain from using forced labour or child labour, eliminate discrimination and guarantee freedom of association and the right to collective bargaining. In addition, companies should pay employees a living wage, keep the working hours to a maximum of 48 hours and provide a healthy and safe working environment.

While companies often have a labour policy in line with these principles and a system to implement it in their own operations, enforcing the policy can be challenging with extensive overseas operations where the local customs and understanding of labour rights may significantly differ from those in their domestic markets.

It is crucial that companies endeavour to ensure these labour standards are also adhered to by their suppliers and subcontractors, which has at times been a struggle for those with extensive supply chain networks. In recent years, a number of companies in labour-intensive sectors such as garment manufacturing and consumer electronics have been accused of violating fundamental labour rights in their supply chains, typically by using child labour or forcing excessive hours on workers. In some of the most high-profile cases, this has had a severe negative impact on the reputation of the companies. As a result, they have had to significantly improve their management of supply chain labour standards, contributing to an overall improvement in company practices across these sectors. Despite these precedents, we continue to find similar issues in other industries.

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Sachi Suzuki Sachi Suzuki is sector lead for industrials and responsible for engagement activities mainly in Japan and southeast Asia. Prior to joining Hermes EOS, she worked as a senior research analyst at EIRIS where she was responsible for the assessment of the ESG performance of Japanese companies, as well as research on bribery and corruption. Sachi graduated from Keio University in Japan with a degree in Economics and holds an MSc in Development Studies from the School of Oriental and African Studies, University of London. She holds the CFA Institute’s Investment Management Certificate.
Read all articles by Sachi Suzuki

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