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Apple needs to admit it still has a labour problem

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Apple needs to do better.

[TAIPEI] Apple needs to do better.

For all the talk of cleaning up its supply chain, too many stories keep popping up about poor working conditions and excessive overtime.

Every year at around this time, Apple makes a song and dance about how much it cares for workers and the environment. Fans point out that Cupertino is doing far more than most others in the industry, and they're right.

Yet, there's no shortage of cynics who dismiss all this as little more than a publicity stunt. And they're right, too, to be sceptical.

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An investigative piece by Bloomberg News found yet more fuel. Workers at Catcher Technology were handling, and possibly breathing, noxious chemicals without appropriate safety equipment. Dormitory and showering facilities were subpar, and resigning workers had salaries withheld in what China Labor Watch says is a breach of labor laws.

Apple, for its part, says it sent additional auditors to the Catcher site but found no evidence of violations of its standards. This makes me wonder how it is that what Apple finds (or doesn't find) is so incongruous with what's uncovered by labor groups like CLW and by journalists.  I truly believe Apple is doing its best, and these efforts to clean up the supply chain are far more than a marketing ploy. I've covered the company and its suppliers for more than a decade, and have done my own site visits.

The supply chain isn't all a world of dystopian gloom.

But it is for some, and that's the problem.

Too many incidents fall through the cracks, and Apple can't seem to stop them. It's great that its suppliers got a health and safety compliance score of 87 out of 100 in 2016 (the latest year for which that report is available).

It's not so great for the worker at Catcher who gets headaches from a noisy factory floor because the company didn't hand out earplugs. That 87 percent score is meaningless to the employee not given adequate instruction on hazardous environments, who is then pressured to fake compliance.

Two months ago, students from a local school were found to be working excessive overtime at an iPhone assembly factory run by Foxconn Technology Group in Zhengzhou, central China. Foxconn! Apple's largest and most important supplier. The company that's been building iPhones since the beginning; which jumped into action when a spate of suicides shone a light on Terry Gou's empire; that now has its own university to train the next generation of managers.  Rather than merely investigate and rectify, Apple needs to ask how can it be that Foxconn allowed even a handful of workers to slip through its clearly mandated labor rules.

This is a company that dished out more than $140 billion to suppliers last year, a figure that's climbed eight-fold since the iPhone was launched. That's a lot of clout to force partners to get in line.

A few months ago, I wrote that the company had lost its supply chain mojo as manufacturing discipline slipped. I believe the same can be said for compliance and auditing.  Apple is still at the front of the pack in supply chain management, labor rights and environmental protection.  Yet if Tim Cook and COO Jeff Williams really want to ensure their standards are met, and I believe they do, they need to recognize that the current approach isn't working well enough.

Unscrupulous suppliers are finding ways to game the auditing process, while even well-meaning partners don't have adequate systems to monitor something as simple as working hours.  Executives at companies that seek to profit from working with Apple must be held personally, and financially, responsible for meeting its standards. Threatening to cancel contracts merely runs the risk of hurting workers while barely punishing management. Watch what happens when a salary or bonus is put on the line.

Catcher is a case in point. Although some workers went for days without a shower, its shares climbed 46 percent last year, boosting the value of chairman Allen Hung's holding by around NT$1.1 billion ($37 million). Catcher denies wrongdoing, yet a very healthy 35 percent operating margin in 2016 means there's no excuse for its executive team to cry poor or skimp on dorm rooms and safety gear. It also shows that there's every reason for Apple to use financial incentives (or punishments) to keep such companies in line.  Apple could take a greater role in sourcing and distributing safety equipment direct to workers. Ear plugs, masks and gloves are inexpensive, so there's no excuse for a shortage. This is not an issue of who pays, but of who takes responsibility. Suppliers haven't, and Apple could, without denting its 38 percent gross margin.

Undercover investigators should be deployed widely. It's amazing how quickly a factory can clean up its act for visitors, and how fast things can slip when they've departed. More, and deeper, due diligence could help Apple keep its finger on the pulse of worker conditions and understand the gripes that labor groups and journalists have uncovered.  Apple wants to improve the conditions of workers and the environment. After these regular stumbles, it's time to admit that a new approach is needed.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

BLOOMBERG

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