Financial Times: Samsung code of conduct put to test

China Labour Bulletin is quoted in the following article. Copyright remains with the original publisher

3 March 2013

By Simon Mundy in Hong Kong

Samsung Electronics’ public literature, like that of many leading global corporations, appeals to investors’ growing scrutiny of companies’ social impact: the first line of its code of conduct states that the world’s biggest technology group by sales complies with “all laws and ethical standards”.

Such claims, however, are now being put to a rare legal test in France.

Samsung was last week sued by three French rights groups that accuse the South Korean company of misleading investors and consumers, amid allegations of labour abuses at its and its suppliers’ factories in China.

The case highlights intensifying international scrutiny of working conditions in China, as well as growing concerns about multinational groups’ control over their complex supply chains. If successful, the lawsuit could open a new legal risk for companies whose suppliers breach labour laws.

The French groups’ case centres on a series of reports by China Labor Watch, a New York organisation, that alleges systematic illegality at Samsung factories and external suppliers in China, including use of child labour at two external plants.

The suit claims that Samsung engaged in “deceptive trading practices”, as the alleged practices conflict with the high ethical standards Samsung claims to uphold.

“This is the first attempt to obtain judicial sanction of this babble-language of multinationals,” says William Bourdon, a human rights lawyer who filed the complaint last week. He had previously won a €5m settlement for allegedly abused Burmese workers from the oil group Total.

“Samsung benefits financially from the ethical image broadcast to the general public,” according to the complaint.

Samsung denies all claims of child labour, and of illegal practice at its own factories. However, it admits that employees at external suppliers sometimes work illegal amounts of overtime, and plans to end this practice “by the end of 2014”.

Such problems are common in Chinese factories, where basic pay often falls short of a living wage, according to the Hong Kong-based group China Labour Bulletin.

“We have not yet received the court filing and are therefore unable to comment until we have had a chance to review the document,” Samsung said.

It is unclear how far the case could affect investment in Samsung. Asset managers with more than $30tn under management are publicly committed to the UN Principles of Responsible Investment, which obliges them to take account of companies’ social impact when investing.
But many investors would rather “engage and raise standards” at a company accused of wrongdoing, rather than divest, says Jamie Allen, secretary-general of the Asian Corporate Governance Association.

Nonetheless, concerns about Samsung’s practices have already had an impact. “A number of investment managers already have Samsung on the list of global companies they can’t invest in for their socially responsible funds,” says Pierre Ferragu, a telecoms analyst at Bernstein.
A company’s response to labour allegations is key, says Park Yoo-kyung, an investment adviser on governance at APG Asset Management Asia, which invests in Samsung. Insufficient action on issues such as child labour could result in divestment, she added, without referring to the company specifically. “If it is proven and the company is in denial, then at some point we would need to make a decision.”

Groups suffering similar allegations in the past have managed to repair some of the damage to their reputations by admitting illegality and taking action to address it. In 2001, Nike issued a statement admitting that the company “blew it” by allowing footballs to be produced for it by children in Pakistan.

Apple responded to allegations about labour abuses in 2006 by instituting an annual supplier audit and publishing the findings. These included repeated instances of child labour, although not in the last report.

Li Qiang, head of China Labor Watch, says that Samsung’s response to his group’s findings compared unfavourably with Apple’s, alleging that the South Korean group has dismissed strong evidence of underage labour. In December, the rights group claimed to have found child workers at a factory supplying Samsung, two weeks after the company rejected the New York group’s previous allegations of child labour at another supplier.

Samsung has not published a detailed response to China Labour Watch’s claims about conditions at its own factories in China, saying only that it was confident that it met the minimum legal standard.

Mr Li says that Samsung has made some improvements to its treatment of Chinese workers, but that its factories continue to break the law. “We’ve never found any Foxconn factory where overtime reaches 186 hours a month,” he says. “But we found that in one of Samsung’s factories.”

Additional reporting by Scheherazade Daneshkhu in Paris

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