Levi Strauss & Co.: Teaching note

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William Atkins
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1 Levi Strauss & Co.: Teaching note Case Questions 1. Who are the stakeholders that are affected by the decision of the management team? 2. What are the options for the management team to approach this dilemma? 3. Which solution would best suit the character of the organization? This case was designed to first help students get an understanding of the moral dilemmas that international executives can encounter. Dilemmas and approaches to solve them often not only have a business dimension, but also a social side and may involve different stakeholder groups. Second, it was designed to facilitate a discussion around different ways of approaching such a dilemma, their pros and cons; and third to identify a socially responsible approach for solving this dilemma. This case can be used both in leadership development programs and in courses in CSR and Corporate Citizenship, and is suited for MBA programs as well as executive education. 1. Stakeholders Affected by the Decision of the Management Team The question of which constituencies are affected by the management s decision can be debriefed in the whole group by using Edward Freeman s classic stakeholder model of the corporation (Freeman 1984, 1994) and by discussing the stakes that the different players have in this case. Suppliers Many multinational companies (MNCs) have their garments produced in low-labor cost countries such as Bangladesh. Local suppliers are interested in and rely on a regular utilization of their production capacity and in having long-term and reliable partners to work

2 with. In this case the suppliers of Levi Strauss may have an interest in sustaining the business relationship with the firm. Levi Strauss on the other hand is interested in working with those suppliers who provide high quality products and services. This is a prerequisite to satisfy demanding customers in a highly competitive fashion market. LS&Co. is also interested in suppliers who can provide good working conditions in their factories, are able to comply with the Global Sourcing and Operating Guidelines and respect the Business Partner Terms of Engagement (TOE), which are seen as being a necessary condition to ensure corporate integrity and to protect the reputation of the organization and its global brand. Yet, in this case two suppliers broke the TOE and international labor law by employing children under the minimum age. Since Levi Strauss is satisfied with the suppliers working conditions and product quality, they may want to continue working with them and to find a mutually satisfactory solution. Owners Levi Strauss & Co. (LS&Co.) was founded in 1853 by the Bavarian immigrant Levi Strauss. His values and principles have very much influenced and shaped the culture of the organization which is based on values such as Empathy Walking in Other People s Shoes ; Originality Being Authentic and Innovative ; Integrity Doing the Right Thing ; Courage Standing Up for What We Believe. The company is still privately held by descendants of the family of Levi Strauss who uphold the family heritage. Shares of company stock are not publicly traded; with the exception of the shares of the Japanese affiliate, which are publicly traded in Japan. With regard to the historical heritage, the family may care as much about the financial return as the long-term sustainability of the business, the firm s image and brand and the organizations integrity. Thus, we can expect that the owners favor a solution that is economically sound and socially responsible. Management As we learn from the letter from John Anderson, president and CEO of LS&Co., which

3 accompanied the Worldwide Code of Business Conduct, the company has a long tradition of Corporate Citizenship. He states that our values and strong belief in doing the right thing are the foundation of our success. The management of the firm has translated this tradition and the underlying moral mindset into business policies like for instance the Global Anti- Bribery and Anti-Corruption Policy, the Worldwide Code of Business Conduct and the Global Sourcing and Operating Guidelines, which consist of two parts, Country Assessment Guidelines and Terms of Engagement. This already points to the option (see next question) that the management of the firm would favor, namely to find a solution to the dilemma which is socially responsible and ethically sound (the right thing to do). Local Community: Families and children The main stakeholders in the local community affected by the decision are the families and their children. A major problem with regard to child labor is the dependence of families on the income of their children. Children are preferred employees because their salaries are lower. Therefore employers hire the children and not their parents. In such a context, one can assume that parents have an interest that their children at least keep a job in a healthy and safe work environment. Yet on the other hand international labor laws were set to protect children and their right to obtain an education. So the decision that Matt and the team have to make in the face of this dilemma will have a direct impact on the under-age children and their families. 2. Options for Approaching the Dilemma This question can be best discussed in small groups of three to four people. The different options that the groups come up with are then debriefed and discussed in the larger group. The options can cover a broad range of approaches: Option A: Tolerating Child Labor Child labor is not illegal and also not an unusual practice in Bangladesh ( although the law discourages employment of children below 14 years of age in factories ); there may be people

4 who take the position do as the Roman do, neglecting global ethical standards and simply pleading that this is the cheapest way of production. Yet, for LS&Co. this position is not an option at all because it contradicts both company standards and international labor laws. Also, in a global media society where information travels quickly, corporations would run a high risk in taking such a position, because they would be quickly criticized by stakeholder groups for such an irresponsible behavior, would receive a lot of negative press coverage, and would face consumer boycotts, which could lead to a drop in share prices and damage its reputation severely. Option B: Urging Suppliers to Fire Under-age Employees Considering international labor standards and also the Global Sourcing and Operating Guidelines, which state that the use of child labor is not permissible, the management team may urge the suppliers to terminate employment of the under-age employees. By taking this approach one would comply with laws and standards, thereby avoiding reputational damage; on the other hand one would ignore the hardship that this decision would cause for the children and their families. Thus, merely enforcing compliance may not always be the right thing to do. Option C: Finding an Integrative Solution That Meets the Needs of all Stakeholders One would try to find a solution that complies with international labor laws and standards and on the other hand is locally responsive and considers the needs of the families and the situation of the children. It is here where we find a complex moral challenge that calls for reconciliation. 3. Dilemma Resolution That Best Suits the Culture of the Organization Given the history, culture and values of the organization a dilemma resolution in the spirit of Option C would obviously best meet the culture of the organization. It would now be time to

5 share the approach which the Levi Strauss operation manager developed with the management team and which became a blueprint to fight child labor in much of South Asia. Imagining a Sustainable Dilemma Resolution Matt and his team knew that although child labor did not contradict local laws, let alone local custom, it certainly violated ILO Labor Standards as well as the company s sourcing guidelines. Yet, given the socio-economic environment and thus income structures in Bangladesh, simply pressing the contractors to terminate the children s employment would most likely aggravate the situation of the children and their families, who would lose a relatively good job and possibly their sole source of income. On the other hand, the under-age children could not simply go back to work to sustain their source of income. There was consensus in the management team that a truly sustainable solution would need to address the problem at its roots, thereby tackling the emergence of child labor rather than curing its symptoms. The challenge for the management team was therefore to find a solution that is consistent with the core values (empathy, originality, integrity, courage) of the firm, complies with international laws and meets the needs of the children; and simultaneously sanctions otherwise reliable contractors for the clear violation of the terms of engagement. Put differently, they were looking for a solution that is sensitive to the local context and honors global standards, at the same time. After deliberating with both the local team and with management at headquarters, Matt decided to put forward an unconventional solution to solve the dilemma: the contractors would agree to pay the already employed under-age workers their salaries and benefits while they attended school. They would also offer the children full-time jobs once they reached the legal working age. Levi Strauss in turn agreed to pay tuition and books; and if there was no

6 room in local schools, Levi s would rent space and hire teachers for the students. Moreover, to prevent future cases of child labor from emerging, the factories would install a screening process involving a school certificate stating that the applicant is 15 years or older. If no such certificate could be produced and there were doubts about the age of an applicant, a dental exam may be ordered to establish the actual age of the applicant. The contractors agreed to this proposal and the approach earned Levis Strauss & Co. not only the praise of NGOs and academics but also of national and international government officials. It has since been adopted as a blueprint to fight child labor in much of South Asia, most prominently as part of the UNICEF Education as Preventive Strategy program. 4. Using Moral Imagination and Showing Virtuous Behavior The dilemma solution reveals some important features of leading responsibly in the global arena: by designing a morally creative solution to the dilemma at hand creative to the extent that both local context and global hypernorms were reconciled. Donaldson and Dunfee (1999, 43f.) define hypernorms as basic principles of what might be termed a thin universal morality. Hypernorms are by definition so fundamental that they serve to evaluate lowerorder, or local, norms. They limit the moral free space of local actors. Thus, global contractors would not allow local unethical practices if they violate hypernorms such as child labor. Matt demonstrated moral imagination (Johnson 1993; Werhane 1999) that is, he explored the moral scope of the problem in unconventional ways while honoring the moral principles that were at stake. Moreover, he demonstrated empathy and cared about the fate of the children, knowing that the spirit of the law reflects the need for protecting children from abuse and exploitation; yet that merely laying off the children would not have the desired outcome. By involving all relevant stakeholders he also demonstrated a high degree of

7 relational intelligence (Pless and Maak 2005). In fact, it is argued that connecting and sustaining relationships to all stakeholders, integrating their desires and needs, and dealing in both emotionally and ethically mature ways with potential conflicts is at the heart of responsible global leadership (Maak and Pless 2006 a, b; Pless 2007). 5. Lessons Learned In conclusion, some of the key lessons that can be drawn from the case are: Responsible managers have to balance the tension of local customs and global norms and values, or hypernorms. Problems are frequently multi-faceted and defy straightforward, linear solutions. Simply enforcing compliance with laws and regulations e.g. by laying off the children may lead to sub-optimal solutions, damaging those whose well-being ought to be ensured. It is important to be knowledgeable about the cultural context and the local socioeconomic structures to be able to make informed and responsible decisions. Knowing all stakeholders and being empathic with respect to their legitimate needs are important qualities for finding a solution that meet the needs of all constituencies involved. Ethical reflection skills are an indispensable element in the process of resolving such a complex dilemma. Moral dilemmas in global business can be reconciled, e.g., by using moral imagination and by approaching a problem from different perspectives. Literature and Suggested Readings Baron, D. P Business and its environment, 4th ed., New Jersey: Prentice Hall. Donaldson, T. and Dunfee, T. (1999). Ties that bind. Boston: Harvard Business School Press. Freeman, R. E Strategic management: A stakeholder approach. Boston: Pitman Publishing. Johnson, M Moral imagination: Implications of cognitive science for ethics. Chicago, London: University of Chicago Press.

8 Maak, T. and Pless, N. M. 2006a. Responsible leadership: A relational approach. In T. Maak and N. M. Pless (Eds.), Responsible leadership. London, New York: Routledge, Maak, T. and Pless, N. M. 2006b. Responsible leadership in a stakeholder society. A relational perspective. Journal of Business Ethics, 66(1), Pless, N. M Understanding responsible leadership: Roles identity and motivational drivers. Journal of Business Ethics, 74(4), Pless, N. M. and Maak, T Relational intelligence for leading responsibly in a connected world. In K. M. Weaver (Ed.), Proceedings of the Sixty-fifth Annual Meeting of the Academy of Management, Honolulu. Werhane, P Moral imagination and management decision making. New York, Oxford: Oxford University Press.

Frequently Asked Questions About LS&Co. Global Sourcing Practices

Frequently Asked Questions About LS&Co. Global Sourcing Practices 1. How many factories do you own? How many suppliers do you outsource to or contract with? 2. When did you release the names of your suppliers?