Hayleys PLC (B1): Social Innovation Centre

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Social Innovation Centre
Hayleys PLC (B1):
Hayleys MTG Knitting Mills PLC
Winner of the 2009 EFMD Case Writing Competition
in the category “Corporate Social Responsibility”
05/2010-5601
This case was written by Mark Hunter, Adjunct Professor, and Luk Van Wassenhove, Professor of Operations
Management, the Henry Ford Chaired Professor of Manufacturing, and Academic Director of INSEAD Social
Innovation Centre. It is intended to be used as a basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation. Opinions, facts and commentary not attributed to Hayleys PLC or
its employees are the sole responsibility of the authors.
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Social Innovation Centre
Hayleys’ textile business was launched as a joint venture in 1993 between the holding (the
majority shareholder) and an Australian manufacturer seeking to relocate operations. The
plant was located in Neboda, south-east of Colombo, a site chosen for its proximity by road to
the capital and a deep, swift river. Textiles require large quantities of water at different stages
in manufacturing. A prominent feature of the grounds was a biological water treatment system
that resembled a massive water slide. Water from the plant containing used dyes and other
effluents (or waste) went into a gravity feed. As it flowed downhill, oxygenated bacteria
broke down the effluents (a similar system was in place at DPL’s rubber factory). Villagers
were invited by management to watch the construction, to show that the company would not
pollute the river.
The location was also chosen for access to a highly educated workforce (with a 90% literacy
rate). Joint Managing Director, Sam Spezza, an Australian of Italian descent, said: “In the old
days, 40 years ago, a machine would produce 20kg of fabric a day. Now, they produce
500kg.” A poorly adjusted machine rapidly could destroy expensive thread or crease a roll of
fabric and make it worthless. Workers, said Spezza, “have to be more skilful. Fabric is all
about precision.” Spezza lived on the plant grounds and began every day by touring the
facility to greet his workers. He said:
“I’ve been in this business more than 30 years. I started from nothing to be the
owner. What I got in life was not from my father or grandfather. I had to work for
it. When people pay you well, and in good conditions, you work because you want
to. You get treated like rubbish, you produce rubbish. There are factories where
people are extremely unethical, and all you can get is problems. I’ve been in such
places. I like to be in a place where there is happiness.”
Analysing dyes at the Neboda plant
Photo: Courtesy Hayleys
In contrast, Sri Lanka’s expanding free trade zones, that harboured Hayleys’ principal
domestic low-cost textile competitors, were notoriously unhappy places to work. In a 2007
survey, the International Trade Union Confederation denounced their abuses of workers’
rights:
“In many cases, union members or officials are suspended, demoted or dismissed,
and many have been assaulted. New workers are warned not to join unions[.] The
government labour inspectors are not allowed to carry out unannounced visits to
factories in the [zones]. When complaints are received by the competent
government body, employers… frequently flout the rulings with total impunity.
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The government has proved incapable of forcing employers to respect the
decisions of the authorities.”1
Such practices had embarrassed the Joint Apparel Association Forum, a government-initiated
trade association, into creating a unique selling proposition, “Garments without Guilt”, for Sri
Lankan textiles in 2006. Hayleys MGT Knitting Mills PLC was not a member. The charter of
the JAAF’s programme included a pledge to “protect workers’ rights.”2 Anton Lodwick,
Deputy Secretary General of the National Workers Congress, commented: “There are good
factories [in the JAAF]. But there are worse factories.”3
The official label of the JAAF and governmental
“Garments Without Guilt” initiative
The Neboda plant had a good reputation for labour practices but conditions in the country at
large had radicalised Sri Lanka’s unions and the plant was unionised. Management were
aware that a strike would be “very damaging” to their business, having observed a strike at a
competing plant that dragged on for months. Delays in delivery meant lost customers, said
Spezza: “At the beginning of November, they say what they need in December, and that
prediction has to be met – no excuses. If you perform, you’re a reliable supplier, if not, next
year you’re not there.”
Management already had a policy of multiplying points of contact with workers via joint
committees with the unions and monthly general meetings. The meetings served to air
grievances and also gave management access to workers’ ideas for improved production and
efficiency. A key advantage in management’s favour was that the plant paid the highest wages
1
2
3
See http://survey08.ituc-csi.org/survey.php?IDContinent=3&IDCountry=LKA&Lang=EN.
See http://www.garmentswithoutguilt.com/default.cfm.
See http://www.lankabusinessonline.com/fullstory.php?newsID=1625076867. There is also evidence that
Garments Without Guilt contributed to improving conditions for workers in some plants. One direct
competitor of Hayleys MGT Knitting Mills PLC was condemned for unfair labour practices in a landmark
2001 court decision, but in 2007 obtained Fair Trade certification, meaning that its labour practices now
meet international standards.
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among local plants for skilled workers. The other joint Managing Director, Bandula
Weerasinghe, commented:
“You can’t stop the unions. If you do the right thing, they’re no problem. You give
good working conditions to people and reward them. If a person works here and
gets paid 10,000 rupees [per month, about US$88],4 and someone down the road
gets 20,000, it’s a problem.”
The firm realised that its declarations of social responsibility could not protect its reputation
abroad, and thus sought internationally recognised certification. Hayleys MGT Knitting Mills
PLC was the first Sri Lankan textile firm to be certified compliant with the SA8000 Social
Accountability Standard, which was based on standards of the International Labour
Organisation and is designed to ensure ethical production of goods and services. Certification
required proof that management not only complied with ethical employment and
environmental standards but had also integrated them into its operational systems.
The parent organisation, Social Accountability International, claimed that adoption of
SA8000 could lead to “improved staff morale, more reliable business partnerships, enhanced
competitiveness, less staff turnover and better worker-manager communication”.5 However,
although some studies showed positive impacts in the agricultural sector, there was no
conclusive evidence that the SA8000 standard, created in 1997, had had a measurable impact
on industrial workers’ lives.6 The firm also obtained Fair Trade certification, which
“guarantees consumers that strict economic, social and environmental criteria were met in the
production and trade” of products including textiles.7
These certifications were a key step in building relationships with multinational customers
such as Oxylane (the French firm that owned the Decathlon retail sporting goods chain), Nike
and Marks & Spencer. An even more crucial step was onsite inspection by customers (For a
full list of the company’s customer certifications, see Exhibit 2), as Weerasinghe explained:
“The big customers, like Decathlon, audit you. They come for two, three days, or
a week, and they can talk to whoever they want. They talk to the workers. When
they come, if the workers are doing more than 60 hours per month overtime,
you’re not good enough to work for them. Then they go around the place to see
the facilities, and if the right facilities are not there – a canteen, toilets, health,
etc. – you can’t work for them. They have to be satisfied.”
Such ethical markets were critical to Hayleys MGT Knitting Mills PLC. Marks & Spencer
alone accounted for 30% of the firm’s US$59.7 million of turnover in 2008.8 Since Hayleys’
textile unit accounted for 12% of the group’s turnover,9 Marks & Spencer provided nearly 4%
of the total. Also in 2008, Decathlon ordered 1 million square metres of fabric, equivalent to a
full week of the plant’s production. Turnover and profits had grown rapidly over the past five
4
5
6
7
8
9
According to Sri Lanka labour unions, workers in non-union shops are frequently paid under US$2 per day.
See http://www.sa-intl.org/index.cfm?fuseaction=Page.viewPage&pageId=617&parentID=473.
See Michael J. Hiscox, Claire Schwartz, Michael W. Toffel, “Evaluating the Impact of SA 8000
Certification”. Harvard University Working Paper, May 28, 2008.
See http://www.transfairusa.org/content/about/index.php.
Hayleys MGT Knitting Mills PLC Annual Report 2008, p. 5.
Hayleys PLC Annual Report 2007-8, p. 34.
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years (see Exhibit 1). Continuous investment in facilities (about US$4 million in both 2007
and 2008)10 to serve bigger accounts was a key reason, but management also believed that it
was imperative to maintain its “close and professional relationship” with clients like Marks &
Spencer.11 Thus it adopted Marks & Spencer’s “Marks and Start”, an employment training
programme for the disabled and disadvantaged12 (For a full list of the firm’s corporate
responsibility practices, see Exhibit 2). Spezza observed:
“With people like Decathlon [and Marks & Spencer], it’s not typical to move
[business from one supplier to another], because it’s not easy to find a place
that’s big enough and meets their conditions. They’re keen on prices, but once
you’ve agreed, you deliver, there’s no problem. They’re very loyal unless you do
the wrong thing.”
10
11
12
Hayleys MGT Knitting Mills PLC Annual Report 2008, p. 24.
Ibid. pp. 3, 5.
Reported by Article 13, self-described as “the responsible business experts.”
See http://www.article13.com/A13_ContentList.asp?strAction=GetPublication&PNID=1344.
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Exhibit 1
Hayleys MGT Knitting Mills PLC Results, 2000-2008
Source: Company document.
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Exhibit 2
Corporate Responsibility Practices at Hayleys MGT Knitting Mills PLC
Environment
Social/community
Certification
Awards
Partners
– Biological waste
(water and solids)
treatment
– “Garments
Without Guilt”
– ISO 9001
– National
Quality
Award 2003
Sri Lanka
government,
customers
(Marks &
Spencer)
– Water
use/energy
reduction
– Conversion to
biomass for
energy
– Worker training
– Healthcare:
worker programs
and US$25,000 to
refurbish local
hospital
– SA 8000
– Customer
certifications:
M&S, Bhs,
Tesco, Adams,
– Worker/Union
participation
Mothercare,
– Local
infrastructure
(drinking water,
telecoms tower,
bridge)
Decathlon,
– Education:
industrial training
(20 students/yr),
loans of resource
personnel to
universities,
leadership training
for schoolchildren,
US$15,000 in
scholarships.
Copyright © 2009 INSEAD
– ISO 14001
Woolworth,
Sainsbury,
Next, Nike
– Oekotex
– Organic
Cotton
– National
Industrial
Safety
Award 2004
– Asia
Pacific
Quality
Award 2005
– National
Business
Excellence
Award 2006
(2nd place)
– National
Productivity
Award 2007
– Fair Trade
Cotton
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