The garment industryFootnote 1 makes up the world’s largest and most globally scattered supply chains that employ tens of millions of workers in more than 50 countries.Footnote 2 Global supply chains are spread across different countries in the world and are predominantly in labour-intensive production industries, such as the garment industry.Footnote 3 In Bangladesh, the ready-made garment (RMG) sector emerged in 1978 and started with Reaz Garments, which exported its first consignment to the US and earned USD69,000.Footnote 4 Since 1978, there has been a successful economic development in this industry that has broadened the employment scope for millions of skilled and semi-skilled workers, who are mostly women.Footnote 5 The RMG sector in Bangladesh employs about 4.1 million people and is the second-largest garment-producing economy after China.Footnote 6 By 2012, the garment factories in Bangladesh that supply to the global market had increased to 5,000.Footnote 7 Therefore, much of the country’s economic activity revolves around producing garments for the global supply chains that contribute 81% to gross domestic product (GDP) and export earnings.Footnote 8 Nevertheless, the country’s readily employable poor labour force underpins this competitive advantage. As a result, there have been serious challenges, such as human rights violations and unfair contractual relationships, that need to be addressed urgently.Footnote 9 Therefore, although the garment industry has contributed to the country’s economic growth, it has come at the cost of the health and safety of workers. Since 2003, more than 2,000 workers have died in fire incidents in the RMG sector.Footnote 10 The collapse of the Rana Plaza factory (in Bangladesh on 24 April 2013, killing at least 1,100 workers and injuring another 2,000) is a well-known example of unacceptable working conditions in supply chains—where safety laws, labour laws, and human rights are frequently violated.Footnote 11 But despite such incidents, the industry was worth USD32.93 billion in 2018 and USD30.1 billion between January and November 2019.Footnote 12
The Rana Plaza disaster demonstrated the complexity and disordered nature of the governance of multinational corporations (MNCs)Footnote 13 with supply chains in Bangladesh.Footnote 14 Being one of the worst industrial disasters of recent times, the incident called into question the corporate social responsibility (CSR) practices of MNCs in the garments sector. MNCs have enormous capacity to help developing nations where they operate. But with globalization and transnational operation of corporations, bad consequences followed, such as corporations polluting the environment; exploiting employees in developing countries; allowing sweatshop conditions for workers; and being negligent with the health and safety of workers, to name but a few.Footnote 15 Such issues are reflected in the garment industry of Bangladesh, where contracting factories compete to cut costs to get the contracts from MNCs, thereby disregarding safe working conditions only to minimize costs. There are many similar cases like that of the Rana Plaza where abuse of workers is rife, exacerbated by systemic flaws of government protection of human rights in Bangladesh, and little effort from MNCs to take their social responsibilities seriously. Rana Plaza also raised the issue of corporate liability and what role CSR and tort law have in such circumstances.
In this article, we attempt to lift the lid of the boiling pot in which these issues have been brewing for far too long. The garment industry in Bangladesh, supply chains in Bangladesh, and the totally unacceptable approach by MNCs are used as a tiny case-study, but the problem is global, international, and systemic, it is submitted.
The article deals with the failure of domestic regulation to support garment manufacturers in Bangladesh during the COVID-19 crisis, as well as with the refusal of large MNCs to support them by honouring the letter and the spirit of their contracts. Although several aspects discussed in this article have application outside the garment industry and will apply to the behaviour and conduct by MNCs outside the garment industry, our focus will be on the garment industry in Bangladesh and MNCs with garment supply chains in Bangladesh. It makes the research focus narrower to keep the article within acceptable length limits, but it will serve as an example of the deeper problems associated with all MNCs and their supply chains in all developing countries.
This article contributes to the existing literature in two ways—first, by providing a clear understanding of the current regulations in the Bangladeshi garment industry along with the social responsibilities of MNCs sourcing from them; and second, it provides a thorough analysis of the impact of COVID-19 on the specific industry in Bangladesh. This is done in the context of the significant impact of COVID-19 globally. This provides a significant contribution to the literature and additional perspectives on some of the latest developments globally, in particular a new perspective on the force majeure doctrine and how it is seen in a new light and interpreted in the context of the law of contract in the US and some recent cases in the EU.
This article uses doctrinal methodology and identifies the laws in the Bangladeshi garment industry, the EU, and the US that affect the Bangladeshi supply chains and demonstrates the extent to which research has taken place in this area.Footnote 16 It examines primary sources such as legislations and case-studies, and secondary sources such as corporate codes of conduct, CSR reports, and academic literature. By analyzing authoritative texts, it clarifies the law on the topic.Footnote 17 It adopts methods such as case-law analyses, as well as specific case-studies focusing on three specific corporations with supply chains in the industry. Literature reviews have become a pertinent research method for scholars and regulators alike who seek to gain knowledge on complex research topics.Footnote 18 Thus, this approach was embraced in this contribution. Furthermore, comparative techniques have been used to study and research aspects of two or more legal systems, namely the EU and the US, to emphasize how the COVID-19 pandemic had a global impact and how approaches on the same legal challenges differ slightly in different parts of the world.
In Section 1, we introduced the topic. In Section 2, we put the crisis in the garment industry in Bangladesh in the context of the pressing challenges all countries are facing because of the COVID-19 pandemic. In Section 3, we focus on the conduct by MNCs and how supply chains in Bangladesh have been affected by their conduct in a significant way. The attention then shifts (in Section 4) to the impact of the COVID-19 crisis on the Bangladeshi garment industry, which in particular is illustrated through the lens of the conduct by a few specific MNCs (we name some) with supply chains in the garment industry in Bangladesh. In Section 5, we deal with some pushback of unacceptable behaviour by MNCs by the consumers of the brand names associated with the MNCs relying on supply chains in Bangladesh. In Section 6, we discuss the important issue of force majeure clauses, relied on by several MNCs to legally avoid their CSRs and denying any duty to act conscionably during times of a crisis, affecting suppliers exponentially more than the MNCs themselves. In this part, we concentrate on corporations and groups like Sears, Kohl’s, and the Arcadia Group. In Section 7, we provide perspectives on some issues related to how the concept of CSR has developed and is currently perceived in Bangladesh. In Section 8, we look at initiatives by MNCs to improve working conditions for the garment industry in Bangladesh. The focus in Section 9 is on broader initiatives from the home states of MNCs to govern legal requirements applying to MNCs operating from these states or jurisdictions (e.g. the EU) but having supply chains in other countries. In Section 10, we draw some conclusions from the research and analyses contained in the body of this article.
2. Bangladesh crisis put in context of the current global COVID-19 pandemic
The COVID-19 pandemic (coronavirus pandemic) has been a game changer for almost every single aspect related to our existence as human beings on this planet. It brought into sharp focus deeply embedded flaws and shortcomings in dominant areas such as health, economics, trade, law, social justice, community expectations, basic human rights, such as freedom of speech and freedom of movement, and too many other areas to mention here. It resulted in an overwhelming international quest for shaping “a new normal,” even though the precise meaning of such a concept is yet evasive in nature. COVID-19 has in fact resulted in a laser-sharp focus on the dire immediate need for innovative, sustainable, and long-term solutions, for good reasons, as Schwab and Malleret point out:
The fault lines of the world—most notably social divides, lack of fairness, absence of cooperation, failure of global governance and leadership—now lie exposed as never before, and people feel the time for reinvention has come. A new world will emerge, the contours of which are for us to both imagine and to draw.Footnote 19
It is in the context of this anticipated “new world” that the focus of this article is on the billions and trillions of dollars that rich nations spent to help their own (country-based) workers and to support their own corporations (seated in these rich countries).Footnote 20 While the COVID-19 pandemic was unfolding, the big clothing brands from around the world started cancelling orders from the suppliers due to sinking demands and, therefore, their inability to sell the products—a reaction that could probably be expected based on the cost-reduction principle of “just in time” as a modern principle of inventory management adopted by large corporations, including MNCs: “this strategy helps companies lower inventory transfer costs, increase efficiency and reduce waste,”Footnote 21 but it can be detrimental to supply chains, especially during a crisis.Footnote 22 These cancellations have put the livelihoods of millions of workers at risk, including workers involved in the garment industry in Bangladesh. The Bangladeshi factory owners’ associations started making appeals to the international buyer companies at the beginning of 2020 to take responsibility and uphold orders already produced and some even shipped. This begs the question: Do these corporations have any social responsibility or social duties to support their supply chains and, if not, can this be right? Should there not be better forms of legal protection to provide remedies for blatantly unfair and unconscionable conduct affecting the very existence of billions of people?
It is even more significant now to focus on the CSR of MNCs, who currently reap massive financial benefits from the poorly regulated CSR environment in Bangladesh, but refuse to take their own CSR, or duties, seriously when push comes to shove. As will be discussed below, also relying on specific case-studies, this totally unacceptable conduct by MNCs has been illustrated in a very cruel way because of the COVID-19 pandemic. Reaping massive financial benefits, without accepting any real responsibility, is something that is unacceptable, and it will have to be addressed as part of the really challenging times ahead for all countries and all economies because of the COVID-19 pandemic. COVID-19 provided a serious global crisis and, as Milton Friedman pointed out in the Preface of his famous book, Capitalism and Freedom: “(o)nly a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.”Footnote 23 It is telling to note that this wise observation was made after Friedman explained the role of his book (and books with a similar focus), namely “to keep options open until circumstances make change necessary.”Footnote 24
In other words, Friedman never presented his theory on capitalism and freedom as rigid or of perpetual application—he envisaged that changing circumstances may make change necessary and one can even read “inevitable.” These circumstances, making the change necessary and inevitable, are here now. They have emerged because of the COVID-19 pandemic. The “ideas that are lying around” to deal with some of the changes desperately needed to deal with the changing circumstances caused by the COVID-19 crisis are discussed in the insightful book by Schwab and Malleret, COVID-19: The Great Reset.Footnote 25 The authors vent several ideas related to a so-called “great reset” required to deal with some of the most fundamental issues (referring specifically to an economic reset, social reset, geopolitical reset, environmental reset, and technological reset) of our times that were exacerbated by the COVID-19 pandemic. The statements and predictions of Schwab and Malleret should be taken seriously. This is substantiated by the fact that the book was written during the early days of the COVID-19 pandemic (June 2020), but many (if not all) of the statements and predictions they made then were not only spot on, but became even more relevant at the time of writing this article (August 2021). Thus, it would be irresponsible to ignore some of the suggestions they make in this book. They do describe the impact of COVID-19 (already in June 2020) correctly, to a disturbing extent, even if measured against current (August 2021) realities all over the world:
[The coronavirus pandemic brought us to] our defining moment—we will be dealing with its fallout for years, and many things will change forever. It is bringing economic disruption of monumental proportions, creating a dangerous and volatile period on multiple fronts—politically, socially, geopolitically–raising deep concerns about the environment and also extending the reach (pernicious or otherwise) of technology into our lives. No industry or business will be spared from the impact of these changes. Millions of companies risk disappearing and many industries face an uncertain future; a few will thrive. On an individual basis, for many, life as they’ve always known it is unravelling at alarming speed. But deep, existential crises also favour introspection and can harbour the potential for transformation.Footnote 26
The CSRs and duties of MNCs require introspection and need to be reformed in the best interests of global governance and in such a way that will lead to a positive outcome for millions of workers working in Bangladeshi supply chains. This article is written using the garment industry in Bangladesh as a case-study, but it is written in the context of the serious global crisis we are in because of the coronavirus. Many issues will have to be addressed, one of them being CSR and duties of MNCs. We deal with that issue pertinently in this article.
3. MNCs’ social responsibility during the pandemic
CSR has persistently evolved over the years and also had its impact on supply chains and foreign brands in as far as they are all part of the international economy.Footnote 27 Proponents of CSR try to inspire corporations to respect human rights and the environments of the host statesFootnote 28 and guidelines are provided by international organizations for corporate management in order to protect the stakeholders.Footnote 29 Although there is no universal definition, broadly, CSR is about broadening the role and impact of the corporation from the economic sphere to social and environmental matters pertaining to the society in which they operate.Footnote 30 According to Carroll, CSR is meant to incorporate the legal responsibility to “obey the law; to be ethical and to be a good corporate citizen when making profits.”Footnote 31 But generally, it requires businesses to address the moral and ethical consequences in their supply chains and thereby to uphold labour and human rights.Footnote 32
Research over the past decade has illustrated how a company’s CSR policy plays an important role in improving supply chain governance.Footnote 33 But still, internationally there is no coherent approach regarding the laws and regulations applying to brands that source products from abroad. Therefore, with the lack of supply chain laws internationally, the stakeholders and the workers are reliant on the voluntary CSR initiatives of the brands. Additionally, corporate law depends heavily on voluntary initiatives taken by the big brands to protect the rights of these stakeholders. So what does it mean to be socially responsible? There could be two different answers: (1) that the corporation does good or (2) that the corporation does not harm.Footnote 34 Taking the first approach, the corporation would be expected to contribute towards the social welfare of the host state by improving health care, infrastructure, workplace safety, etc. The second approach of avoiding harm would entail the prevention of adverse effects by actively taking note of human rights violations and other abuses in the workplaces. It is the second approach of avoiding harm to host country employers and employees that we are dealing with in the context of the garment industry, where exploitation of poor workers and lopsided contracts have become a major problem.
In this globalized world where supply chains play a major role in manufacturing products for foreign brands, the COVID-19 pandemic already has ensured, and will progressively ensure, a renewed focus on the approaches of MNCs towards their supply chains and their legal duties and responsibilities in respect of their supply chains. In fact, it will probably have a significantly wider impact on the duty of care of MNCs and supply chains towards all stakeholders that can be affected by how they conduct and manage their businesses. The failure of large American corporations to build up reserve funds to look after, inter alia, employees has been strikingly commented on by a former Chief Justice of the Delaware Supreme Court in a piece published by the New York Times in 2020:
After a 10-year economic expansion that led to record increases in earnings, plus huge corporate tax relief, American corporations should have had substantial cash reserves to sustain them during a short period without revenue. But many did not, and instead were highly leveraged, lacked adequate reserves, and lived paycheck to paycheck, so to speak. What happened to that cash? Much of it was returned to shareholders in dividends and stock buybacks.Footnote 35
They point out that it was the lack of reserve funds that was one cause for having to lay off thousands of workers.Footnote 36 They observe that there could be finger-pointing and shaming, but then ask the fundamental corporate law and corporate governance question: “Are Americans well served by a corporate governance system that has encouraged all sectors of the economy to run their businesses on fumes?”Footnote 37
4. The impact of the COVID-19 crisis on the Bangladeshi garment industry
4.1 Rana Plaza disaster and its aftermath
Seven years after the Rana Plaza disaster the workers’ lives in this industry again face risks with order cancellations due to the ongoing pandemic. As the crisis began to hit the bottom line of the brands, they decided to put a halt on all new orders and cancelled most orders that had already been made and shipped by the suppliers in Bangladesh. It appears that historically brands have tried to push the costs down to their supply chains. During the pandemic, this was demonstrated by how abruptly they cancelled orders and declined to pay for orders already produced.Footnote 38 Furthermore, 72.1% of the brands refused to pay for the raw materials that were already bought and used in making their products.Footnote 39
The Centre for Global Workers’ Rights and Worker Rights Consortium carried out a study on the impact of the COVID crisis in the Bangladeshi RMG sector on 27 March 2020, in which 316 suppliers participated.Footnote 40 The reports from this study showed that international brands and retailers had suspended clothing orders from Bangladesh for up to USD6 billion.Footnote 41 In this context, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) president Rubana Haq had stated in early 2020:
Our workers’ lives will be at stake—your credibility and reputation will be at stake if we don’t come out of this crisis together—for you, it’s a question of the survival of the businesses, for us it’s the survival of our 4.1 million workers.Footnote 42
In response to that, the EU provided emergency funding to help the industry that was much appreciated by Rubana Haq but she said: “this could only go so far in limiting the damage that has been done to the garment and textile industry.”Footnote 43
At the beginning of 2020, the Asian Development Bank (ADB) estimated that the country will lose approximately 1.1% of its GDP if the situation is at its worst and the outbreak lasts for about six months, which would impact the economy by losing USD3.02 billion.Footnote 44 Media reports from Bangladesh showed that some factories started making protective equipment against the coronavirus such as masks and the government allowed them to stay open during the first wave in 2020 if they were working on previous orders and taking adequate safety measures.Footnote 45 The Bangladesh Knitwear Manufacturers and Exporters Association vice president Mohammad Hatem stated: “[w]e have to accept coronavirus as part of life. If we do not open factories, there will be an economic crisis.”Footnote 46
4.2 How the pandemic affected the vulnerable workers
The COVID-19 pandemic is a global economic and health crisis, affecting many businesses equally. But simply pushing down costs to suppliers by cancelling orders that have already been made has not been a responsible approach on the part of the MNCs.Footnote 47 While the International Labour Organisation (ILO) estimates some 25 million people will lose their jobs worldwide due to the crisis, these supply chain workers in the Bangladeshi garment industry are particularly vulnerable considering their monthly income and socioeconomic background. Bangladesh’s low wages make the country competitive in the global market. Being one of the poorest countries in the world, it is no surprise that these workers are some of the lowest-paid in the global production chain. The minimum monthly pay for workers was approximately USD95 in December 2019. It increased from USD68 per month in 2014, but in 2006 it was only a shocking USD14 per month.Footnote 48 Moreover, a lot cannot be expected from the owners of the local companies that produce for the global economy as they have also suffered huge losses due to the cancellations from the brands themselves. The local factories have reported that their workers could go hungry with the MNCs cancelling or halting orders due to the coronavirus.Footnote 49
The International Apparel Federation that represents hundreds of thousands of companies around the world commented in 2020 on the effect of the COVID-19 pandemic on supply chains:
No buyer can be expected to sacrifice its own existence or the jobs of its employees to save its suppliers. But collaboratively searching for ways to reduce the damage to suppliers is not only an urgent need but feasible. Solidarity in the face of this crisis means collaborating with industry members to bridge the income gap for workers and the demand gap for business. Operating with the objective of moving as much of the pain upstream in the supply chain will create breaches of trust that will be difficult to repair when we emerge from this crisis …. Choices made now will be scrutinized later.Footnote 50
Many front-line retail workers in Canada, the UK, and the US became eligible for federally sponsored wage subsidies as a result of shop closures.Footnote 51 In Bangladesh, a 2020 survey by the Worker’s Rights Consortium (WRC) of nearly 300 Bangladeshi garment suppliers found that when workers were dismissed as a result of the cancellation of orders, about 97.3% of suppliers refused to assist suppliers with severance pay or in covering the cost of furloughing workers.Footnote 52 Over two million workers had lost their jobs in 2020 or were furloughed.Footnote 53 In this regard, Kalpona Akter, executive director of the Bangladesh Centre for Workers Solidarity, suggested that “[i]f workers are laid off, brands should ensure immediate payments to factories so that workers receive their full legally owed severance.”Footnote 54
However, as the supply chain workers lack formal employment contracts, they are typically excluded from any financial support offered by the brands.Footnote 55 In the past, this was manifested by the limitations to compensation schemes after the Rana Plaza disaster.Footnote 56 Moreover, during the pandemic, there have been reports from the workers that they were being forced to work without adequate precautions, but they were taking that risk to avoid starvation.Footnote 57 At a time like this, people’s lives, and livelihood, are equally important and some of the workers are worried that they might die of hunger, if not from contracting the virus itself due to the working conditions. As the entire global market came to a virtual shutdown, one might wonder whether there should not be enhanced social responsibility from the corporations in the form of holding the hands of their suppliers—in other words, collaboratively searching for solutions rather than a top-down legalistic approach from the rich and powerful affecting the poor and vulnerable in inhumane and unimaginable ways, largely imposed by those only experiencing the impact of the coronavirus from relatively cosy First World countries.
4.3 MNCs’ behaviour towards their supply chains during the pandemic
While some brands chose to change their payment terms (such as Marks and Spencer),Footnote 58 others had requested discounts from their suppliers such as Debenhams, who reportedly asked for a 90% discount.Footnote 59 Asda (a retailer) wanted a 40–70% discount on orders that were being made by the suppliers.Footnote 60 Furthermore, Asda refused to accept 20% of orders that had already been shipped to them by the suppliers, even before the crisis began.Footnote 61 Asda’s behaviour in asking for that discount is difficult to justify because they were allowed to keep their stores open but blatantly exploited their suppliers at a time of crisis and disregarded any ethical obligations towards the workers down their supply chains.
Primark was one of the brands to cancel orders already made by the suppliers and had initially stated that the brand was losing sales of USD807.82 million per month.Footnote 62 Further, Matalan and the Edinburgh Woollen Mill are brands that cancelled £2.4 billion in orders.Footnote 63 Although most brands initially decided to reject orders already made by the producers, about 14 of themFootnote 64 then reverted from that decision and agreed to pay for existing orders.Footnote 65 This was perhaps due to the pressure from transnational labour rights activists (Clean Clothes Campaign) to support the workers.Footnote 66 For instance, H&M initially stated that it would “temporarily pause new orders as well as evaluate potential changes on recently placed orders.”Footnote 67 However, H&M later reversed that decision and agreed to honour existing financial arrangements and pay the invoices for ordered goods in 2020.Footnote 68 After criticism from the media, similarly Primark paid an additional £370 million to its suppliers for orders already made that were to be delivered by 17 April.Footnote 69
A core issue is, from a legal and ethical point of view, that these uncertainties should be avoided at all costs as they cause massive anxiety among those managing supply chains as well as all workers employed by these supply chains. Abuse and misuse of positions of power boil down to bullying and it is something that should not be tolerated in society generally but also, not at the highest levels of trade relationships, since all sorts of bullying affect humans in significant ways and almost inevitably leave scars for life. MNCs should be held accountable for the way they treat their suppliers during this crisis. Taking unfair advantage because of the underlying economic disparity between the parties should no longer be tolerated. MNCs should be named and shamed for not fulfilling their duty of care to protect the workers during the pandemic and for avoiding their legal duties to uphold the contracts with their suppliers. Rectifying matters should not be left to consumer pressure alone—the focus of the next part of this article.
5. Consumer pressure
Nowadays, corporations’ social responsibilities are scrutinized internationally by individual consumers and consumer protest groups as they want corporations to behave responsibly and fulfil their corporate social responsibilities or, as some argue, their corporate social responsibility duty.Footnote 70 Besides, consumers have an expectation from corporations not to breach the law, for instance not breaching human rights laws. Not fulfilling perceived CSRs, breaching the law, or in cases where corporations are suspected of illegal conduct may lead individual consumers and consumer protest groups to stop buying products manufactured by corporations not acting responsibly. This affects MNCs as well as their supply chains. Because of these factors, MNCs generally try to be transparent about the working conditions in their supply chains.Footnote 71 In fact, in the past, companies like GAP and Walmart have been put under considerable international pressure related to human rights abuses and poor working conditions in Bangladesh.Footnote 72 Moreover, it is expected that corporations will have to disclose and report on non-financial issues such as human rights, labour rights, and decent working conditions on an annual basis so that consumers can make informed purchasing decisions.Footnote 73
It is often argued in academia that, like governments, the companies have entered into a “social contract” with stakeholders and that this social contract goes beyond their legal right to operate, thereby allowing them to coexist and thrive in society.Footnote 74 According to Shocker & Sethi, because of this “social contract”Footnote 75 between the organization and those affected by its operations,Footnote 76 organizations are expected to comply with the terms of this contract whether implied or expressed.Footnote 77 Additionally, Deegan & Rankin note that this social contract may be revoked by the community through a reduction in demand for the products by consumers.Footnote 78 The way corporations enter this social contract is by committing to certain ethical principles and there are various ways of doing that, whether it is through codes of conduct, CSR programmes, or voluntary industry initiatives.Footnote 79 Therefore, by neglecting their supply chain employees and not considering the legitimate expectations from the community, the MNCs can, in turn, suffer losses in the long run. The legitimacy theory advocates that companies use CSR disclosures as a means of gaining legitimacy through influencing society’s perception of them, including perceptions regarding human rights abuses.Footnote 80 Hence, according to this theory, the choices made by the MNCs at this time of crisis may have an impact on their success in the future.
Given the magnitude of the current global crisis induced by the coronavirus, the rich nations have tried to provide support to their own businesses by injecting unprecedented high levels of fiscal stimulus into their economies to prevent an economic catastrophe.Footnote 81 However, these supply chain workers were not included in their stimulus/rescue packages. Instead, lawsuits had to be filed to get payments from the brands that cancelled orders by invoking force majeure clauses. The focus of the paper will now turn to these clauses.
6. The legality of terminating contracts by using force majeure clauses
Force majeure is a legal term that has been heard a lot amidst the COVID-19 crisis as the pandemic has given rise to numerous cases around the world where companies invoked force majeure clauses. Force majeure (meaning, superior force) is a legal doctrine that has its roots in the French Napoleonic Code but is often used in commercial contracts around the world today.Footnote 82 Force majeure clauses allow the parties to avoid contractual liability where an unforeseen event prevents them from performing their contract.Footnote 83 The International Chamber of Commerce (ICC) defines force majeure similarly and it lists an epidemic as such an event.Footnote 84 In the common-law jurisdictions, doctrines such as the “frustration of purpose” and “impossibility” have performed the same role in the absence of contractual terms to dictate the risk allocation amongst the parties.Footnote 85 The standard for invoking a force majeure previously was “impossibility,” which has now become “impracticability.”Footnote 86 The ICC developed a model force majeure clause in 2003, which incorporates this impracticability standard and provides some legal requirements that (1) it is beyond the party’s control, (2) not foreseeable at the time the contract is signed, and (3) is an event that could not reasonably have been avoided or overcome.Footnote 87
Typically, fashion brands with supply chains try to limit their contractual or other legal obligations with their suppliers based on any force majeure circumstance. During the ongoing pandemic, as brands cancelled orders, they dubiously used force majeure clauses for non-performance of contractual obligations.Footnote 88 This is questionable, as a lot of these brands did not have a clause in their contracts that would allow cancellation during a global health crisis.Footnote 89 In pre-COVID times, there have been cases where viral outbreaks have not been regarded as a force majeure event. For instance, the H1N1 flu pandemic in 2009 (also called the swine flu pandemic) was not considered a force majeure event by the Besançon Court of Appeal in France.Footnote 90 The Court of Appeal in Paris came to a similar decision regarding the Ebola outbreak.Footnote 91 Even a major economic downturn like the global financial crisis (GFC) in 2008 was held not to be such an event,Footnote 92 thus not making the performance of contracts impossible.Footnote 93 In Route 6 Outparcels, LLC v. Ruby Tuesday, Inc., the court stated as follows:
Commercial parties routinely enter into contractual agreements to allocate economic risk, and the risk of changing economic conditions or a decline in a contracting party’s finances is part and parcel of virtually every contract [and that] [e]conomic factors are an inherent part of all sophisticated business transactions and, as such, while not predictable, are never completely unforeseeable; indeed, financial hardship is not grounds for avoiding performance under a contract.Footnote 94
Thus, mere difficulties in continuing the operations or distractions that affect the financial profitability from the contract typically do not cause the contract to be frustrated.Footnote 95 This was reiterated in the recent US case of Lantino v. Clay LLC,Footnote 96 where it was decided that financial difficulty, even if caused by an unforeseen event like COVID-19, does not excuse performance of the contract under common-law theories such as “frustration of contract, or impossibility.”Footnote 97
However, another recent US case, JN Contemporary Art LLC v. Phillips Auctioneers LLC,Footnote 98 confirmed that the current pandemic will be considered a force majeure event. In this case, the contract did not include pandemic in its list of force majeure events, therefore the court had to decide whether the parties intended at the time of contracting that a pandemic like the COVID-19 pandemic could be a ground for non-performance under the contract.Footnote 99 Relying on the broader catch-all statement “circumstances beyond our or your reasonable control” and a “natural disaster” mentioned in the contract as a circumstance, the court held that the pandemic qualified as a natural disaster and hence was a force majeure event.Footnote 100 In JN Contemporary Art LLC v. Phillips Auctioneers LLC it was pointed out that in analyzing a catch-all statement, the courts typically employ the ejusdem generis canon of construction—meaning cases “of the same kind or class.”Footnote 101 Therefore, the courts normally look for enumerated events like “strikes … fires, floods, earthquakes, or acts of God.”Footnote 102 Generally force majeure clauses are drafted to include both “acts of God,” over which humans have no control, and events like strikes that can be within human control.Footnote 103 If not enumerated, the invoking party has to prove that their clause fits within the catch-all statement. The second hurdle for the invoking party is to prove that the force majeure event proximately caused non-complianceFootnote 104 with the contract and not merely made a commercial contract less profitable for one of the contracting parties.Footnote 105 Along with JN Contemporary Art LLC v. Phillips Auctioneers LLC, several other judgements in the US held that COVID-19 fell within a force majeure clause as a “natural disaster.”Footnote 106 The district court in JN Contemporary Art LLC v. Phillips Auctioneers LLC stated that “[i]t cannot be seriously disputed that the COVID-19 pandemic is a natural disaster.”Footnote 107 Nonetheless, there have been contradictory debates as to the use of COVID-19 as a force majeure event.Footnote 108
According to Article 7.1.1 of the Vienna Convention for International Commercial Contracts, force majeure clauses should apply to the party with the most relevant contractual obligation, which in this case would be the Bangladeshi factories that produced the goods and not the buyers.Footnote 109 It is contended that COVID-19 itself did not affect most MNCs’ ability to pay for the goods ordered, since they could have sold the goods online if not in-store.Footnote 110 Although this pandemic has been held to be a force majeure event, it is doubtful whether it would be legal to cancel the orders that had already been produced and shipped. An arbitrator or a court would not likely allow a brand to walk away without “any” form of compensation even though the pandemic is a force majeure event.Footnote 111 Instead, they would likely be required to prove the efforts taken to avoid the effects of the pandemic, which justifies not being able to pay the suppliers in full as agreed upon under the terms of the contract. Additionally, it would be assessed whether the effects of the pandemic were foreseeable, such as a drop in demand, etc.Footnote 112 This argument can be supported by another recent US case, Re Hitz Restaurant,Footnote 113 where the tenant restaurant turned to the force majeure clause of the lease contract, which included “governmental action” as such an event.Footnote 114 The court noted that as the Illinois restrictions prohibited on-premises dining, the tenant’s rent obligation should be partially reduced to reflect the proportion that could be earned from in-person dining only.Footnote 115 Therefore, the tenants still had to pay a certain amount in rent from the income accrued from deliveries and takeouts.
It is legally justifiable for courts to interpret force majeure contractual provisions according to the rules applying to the rules of contractual interpretation or give effect to the common-law consequence of force majeure events, which have been developed over hundreds of years. However, it remains indefensible that corporations can ignore their social responsibilities toward supply chains while paying hundreds of millions of dollars in dividends to shareholders and enriching shareholders through generous share buy-back schemes.Footnote 116
Although hundreds of millions of dollars rested on the construction of a seemingly standard clause in the contracts, the COVID-19 pandemic revealed that in fact force majeure, as a legal doctrine, was quite underdeveloped in the US.Footnote 117 Hence the courts in the US had to make important interpretative decisions on force majeure clauses that they have not done before.Footnote 118 Such decisions and interpretative choices by the courts will determine the construction and interpretation of force majeure clauses in a post-COVID world. Having said that, the outcomes of the cases will undoubtedly vary depending on the circumstances of each case, even if the pandemic is considered a force majeure event. Another problem that has arisen is that at common law it was understood that force majeure could be invoked by an unforeseeable event, but that presumption has now been discarded by several judgements in the US. Instead, it will suffice if there are specific events that can excuse the performance of the contract, thus giving rise to a conflict of the force majeure doctrine at common law, which is understood as an unforeseeable event, and the contractual tool of inserting a specific force majeure event in modern contract jurisprudence.Footnote 119
6.2 Case studies
In 2020, a USD40 million lawsuit from Bangladesh was filed by 21 RMG makers in Bangladesh against the parent company of an American company called Sears. The parent company Transformco (which also owns Kmart) refused to pay the suppliers in 2020 and left them with piles of produced clothes, knowing that employees could face hardship or even starvation.Footnote 120 According to the lawyers, more than USD21 million of their clients’ products were already shipped and were being stored by Transformco’s carriers in US ports when the company conveniently cancelled their order, which according to the lawyers was a breach of contract.Footnote 121 The lawyers stated that this “breach of contract has contributed to an evolving humanitarian disaster in Bangladesh and elsewhere in Asia.”Footnote 122
It appears that the details of the settlement are confidential. However, it is not difficult to imagine why they would settle, as a large majority of published arbitral awards suggest that force majeure defences are typically rejected. In the past, after the Rana Plaza incident (referred to above), the humanitarian tragedy ended up with two lawsuits as class actions that were commenced in America and Canada, respectively, against corporations that sourced from Bangladesh—on grounds of negligence, vicarious liability, and breach of fiduciary duty.Footnote 123 These cases were based on tort law and the arguments were based on violation of CSR and corporate codes of conduct.Footnote 124 Unfortunately, both the cases failed because of limitation of statute issues but, in the discussion, no duty of care could be established in either case. Breach of CSR commitments was considered not to have any legal consequences and thus no remedy would be available to the plaintiffs in any case. After the current win with Sears in 2020, Joseph E. Sarachek (lawyer representing the case against Sears) stated that hundreds of other factories are also looking for a remedy for the non-payment of produced goods. Sarachek stated that the case further revealed “lopsided contracts” between brands and factories that go against international norms.Footnote 125 Thus, what can be seen here is the re-emergence of the same problem in the industry that is indicative of how deeply entrenched inequalities in relationships between the parties are. In this regard, Jeffrey Vogt (who has co-authored the policy paper, “Farce Majeure”), notes “[that the contracts are one-sided by design] and none of it is accidental.”Footnote 126 Hence, with the broad usage of the force majeure clause, the pandemic has attracted an examination of the contractual terms between the parties (i.e. the MNCs and their suppliers). The next part of the paper examines, as another case-study, the contract by Kohl’s (an American retail chain) and its supplier that had terms allowing the MNC the right to cancel orders for almost any reason.Footnote 127
Kohl’s contract stated:
[w]e may cancel our Purchase Order in whole or in part without your authorization and at Kohl’s sole and absolute discretion in the event of any of the following, each of which it is agreed will substantially impair the value of the whole Purchase Order to us: … (g) in the event of acts of God (including, but not limited to, natural disasters, fire, flood, earthquake and disease outbreaks), lock-out, strike, war, civil commotion or disturbances, acts of public enemies, government restrictions, riots, insurrections, sabotage, blockage, embargo, or other causes beyond our reasonable control … [c]ancellation by Kohl’s for any of the foregoing reasons shall constitute “for cause” and shall not subject us to any liability, cost, or charge whatsoever.Footnote 128
What is particularly important in analyzing the validity of the clause is the wording of that specific clause in the contract.Footnote 129 This is because, according to an ICC arbitrator’s decision in a previous case, unless the type of event is specifically listed in their force majeure clause, there is practically no other external event that can then be deemed unforeseeable and constitute force majeure to excuse contract performance,Footnote 130 although that will perhaps now change after the decision in JN Contemporary Art LLC v. Phillips Auctioneers LLC.Footnote 131
In the current case, they found it within their rights to cancel even after the products were shipped to them, thereby making it clear that no time limit applies as to when they can cancel.Footnote 132 In their force majeure clause, Kohl’s specified disease outbreak as such an event but what is amazing to see is that after cancelling orders worth USD150 million in Korea and Bangladesh, furloughing 8,500 US staff, and leaving thousands of garment workers unemployed, in April 2020, Kohl’s paid its shareholders USD109 million in dividends, indicating gross indifference regarding the ethical implications.Footnote 133 It prioritized discretionary pay to the shareholders, who have already been paid USD2.4 billion over the last three years, over its contractual obligation to pay for the goods that the suppliers already have made.Footnote 134 By doing so, the company has placed its supply chain workers in Bangladesh at grave risk of unemployment amidst an ongoing pandemic.Footnote 135 According to the BGMEA, thousands of workers lost their jobs solely because of Kohl’s refusal to pay, in spite of the fact that many of these workers have been making clothes for Kohl’s for years.Footnote 136 Although this behaviour might look outrageous, it is still legal because the company typically has a cancellation clause in all its contracts that is grossly one-sided, giving it the right to cancel for almost any reason and without any liability.Footnote 137
In their 2020 Environmental, Social, and Governance (ESG) report, it stated:
Kohl’s leverages strong position as retailer of purpose to enhance the lives of its associates, customers and, communities throughout 2020. Responsible corporate citizenship is an important part of our company’s values, and we are committed to incorporating socially responsible principles into our daily business activities. Our governance practices form the foundation for how we manage risk, ensure accountability, and provide transparency to our stakeholders.Footnote 138
6.2.3 Arcadia Group
Contracts with the Arcadia Group contained equally one-sided cancelling powers to that of Kohl’s and that too could be applied at any stage of the order. For instance, Condition 18 in Arcadia’s contract stated:
We can ask you to suspend or cancel any delivery or order if we cannot use, or are hindered or prevented from using, the Goods because of any cause beyond our control… Where we cancel an order, we are not responsible for the cost of the Goods, the cost of any fabric, or any other cost at all, including the cost of any trim or component.Footnote 139
Depending on this clause, the Arcadia Group cancelled and refused to pay for produced goods. One factory owner stated that he would have to close his factory, which would make 2,000 workers “destitute” unless the group honoured contracts for thousands of clothing items.Footnote 140 The Human Rights Watch stated that “[b]rands should take steps to minimize the devastating economic consequences for garment workers in their global supply chains and for their families who depend on this income to survive.”Footnote 141
6.3 Consequences and perspective
Whilst force majeure clauses allow the parties to avoid their contractual obligations where performance becomes impossible, invoking them to cancel completed orders would in most cases be inconsistent under international standards. Such actions also fail to consider the social impact on the workers. Moreover, COVID-19 created a discordance between the common-law presumption of the force majeure event being an unforeseeable event and the contemporary perspectives regarding the presumption of control over events and the scope of force majeure clauses. Although the pandemic is being cited as a force majeure event by the courts, the precedents so far suggest that few parties are likely to obtain any relief when they rely on it based on a pandemic that was caused in the way the COVID-19 pandemic was caused.
The above case-studies show that the lopsided contracts allow the MNCs to take up zero responsibility at a time of crisis, pushing down the burden fully on their weaker counterparts. These contracts are at large contracts of adhesion—in other words, take-it-or-leave-it agreements.Footnote 142 If the parties had equal bargaining powers when negotiating the contract, a force majeure clause would allow both parties to select a resolution that would work best in such a situation. The payout by Sears indicates that the force majeure clauses, in most cases, would perhaps be similarly ineffective considering the circumstances. One-sided insertion of force majeure rights seems unfair; therefore this status quo needs to be challenged and MNCs should be exposed for such behaviour towards their suppliers. What is unacceptable and unfortunate is that MNCs can still manage a good corporate image by window-dressing their websites with CSR rhetoric and posting ESG reports, while exploiting the poor workers down their supply chains.
7. CSR in Bangladesh
7.1 Corporate realities in Bangladesh
Strong economies generally embraced CSR principles. However, in Bangladesh, there is a lack of pressure for corporate self-regulation and basic strategies to fulfil social responsibilities by corporations.Footnote 143 Furthermore, in Bangladesh, a clear understanding of CSR is absent. But it does not mean that there is not an openness towards and even a willingness in Bangladesh to promote CSR principles. As Sobhan notes, there is “a volume of philanthropic activities” and businesses that are “eager to adopt CSR practices.”Footnote 144
There is not much literature on the historical development of CSR practices in Bangladesh.Footnote 145 However, philanthropic activities can be traced back to the Indian era (i.e. before 1947), when merchants donated to society by sharing their wealth with different charitable organizations such as orphanages and religious institutions.Footnote 146 The practices of the past still have an influence on CSR in Bangladesh today, which is characterized by charitable community development activities by local companies.Footnote 147 Bangladesh is prone to natural disasters and voluntary contributions have been made from businesses to tackle these social issues in the aftermath of these disasters.Footnote 148
It should be noted that in Bangladesh, there is no specific legislation to regulate CSR comparable to legislation on CSR in neighbouring India, where the Indian Companies Act (2013) makes it obligatory for certain large public companies to pay 2% of average net profits towards CSR.Footnote 149 While the Companies Act (Bangladesh 1994) describes the rights and liabilities of company owners or boards of directors and the company’s corporate governance attributes, it does not address the social responsibilities of directors or their management strategies.Footnote 150 On account of a lack of guiding CSR principles or legislation on CSR, the problem in Bangladesh is exacerbated because of ignorant consumers, insufficient private institutions to watch corporate performances, and corrupt public establishments. Bangladesh’s corporation law also fails to incorporate core philosophies of CSR in its policies and practice.Footnote 151 Sarwar Uddin, an academic from Bangladesh, has pointed out that the economic negligence that Bangladesh had to endure for over two centuries during colonial rule has significantly deterred the development of a proper institutional corporate regulatory system.Footnote 152 This is reflected in the country’s hybrid corporate governance system, which has been changed on many occasions over the last 50 years.Footnote 153 This begs the next question: What regulations or general principles are there in Bangladesh to develop CSR?
7.2 Existing regulations or general CSR principles in Bangladesh
The corporate regulatory framework does not have strict measures to create pressure on corporations to accommodate stakeholders, other than the government and stockholders.Footnote 154 Further, the extent of NGO engagement in the corporate sector is very low. For example, in recent years, the RMG workers demanded a rise in minimum pay but NGOs did not get involved.Footnote 155 Nevertheless, there have been initiatives from local organizations to promote CSR, such as the Bangladesh Enterprise Institute, which is a nonprofit research centre that launched its CSR Centre in 2000.Footnote 156 Furthermore, CSR Bangladesh, another nonprofit organization, established in 2008, aims to promote and increase CSR practices in local Bangladeshi companies.Footnote 157
The workers in the garment industry help bring billions of dollars (over USD30.61 billion of exports in the 2017–2018 financial year) to the supplying factory owners, but no or little support was provided by them at this time of crisis.Footnote 158 On 2 May 2020, one of the most highly regarded national daily newspapers in Bangladesh (The Daily Prothom Alo) published a story that two furloughed employees of a local garment factory had to sell their newborn baby at a hospital for not being able to pay the hospital fees of USD295 as a result of the factory having shut down due to COVID-19.Footnote 159 According to local news reports, the Bangladesh government has injected a USD590 million stimulus package into the economy for the export-oriented sectors of Bangladesh in 2020 and has specifically given USD59 million to the RMG sector, with a condition that the money is disbursed in the form of salaries for the workers of the industry.Footnote 160 But this too has not helped the local suppliers pay many of the workers’ salaries. Moreover, as one union member mentions, unions that are fighting for workers’ rights are criminalized in the country.Footnote 161 This is more because some legislators in Bangladesh own garment factories and focus on their own profit maximization and hence they are reluctant to increase wages or improve the working conditions in the industry. Thus, Momotaz Khatun, an academic from Bangladesh, has written that “Bangladeshi laws related to corporate regulation and responsibility do not possess the necessary features to develop a socially responsible corporate culture”Footnote 162
7.3 Action or law reform required
As Bangladesh lacks policies and strategies for developing CSR, many academics suggest that legal regulations should bridge this gap.Footnote 163 In the last decade, many countries have mandated aspects of CSR, which can be seen in the public companies reporting requirements around the world.Footnote 164 The trend in ESG reporting requirements such as on supply chain management have lifted various CSR commitments from being voluntary to mandatory.Footnote 165 These trends should be followed in Bangladesh, but there seems to be a long way to go before it will become part of the Bangladeshi corporate law and corporate governance models.
8. Initiatives by MNCs to improve working conditions in the industry
The policy-makers in Bangladesh have only recently considered the issue of CSR, which mainly got attention after the Rana Plaza disaster.Footnote 166 As a result of the Rana Plaza disaster and widely covered media criticism, attempts were made by the MNCs as well to improve conditions in the garment industry by developing the Accord and Alliance. The Accord on Fire and Building Safety in Bangladesh’ and the Alliance for Bangladesh Worker Safety were both private governance instruments for the Bangladeshi supply chains initiated by foreign brands with supply chains in Bangladesh. The Accord in Bangladesh was created to help inspect fire and building safety for workers and the agreement was initiated and came into force after the Rana Plaza disaster.Footnote 167 It was a ﬁve-year agreement between global brands and trade union federations that was legally binding and enforceable and was aimed to build a safer garment industry in Bangladesh.Footnote 168 The Accord, which affected two million workers, was intended to be a form of labour governance, as it included legally binding arbitration clauses and created an enforceable contract, including clauses relating to continuity of orders along with monitoring supplier transparency.Footnote 169 These commitments were legally enforceable in the company’s home country.Footnote 170 This agreement already parted from the voluntary culture of CSR and, as a result, the commitments may have been observed more seriously by the MNCs. However, the commitments were not for a broad range of issues, but merely focused on fire and building safety; yet, being a legally enforceable agreement, it had deterred many US brands from signing the Accord. Therefore, GAP, Walmart, and Kohl’s announced an alternative agreement that would not be legally enforceable, known as the Alliance for Bangladesh Worker Safety.Footnote 171 Similarly, the Alliance had contributed to workers’ safety funds (WSF) in order to take measures for fire and building safety. The agreement stated that members would take initiatives to prohibit unauthorized subcontracting. The Alliance was said to be more of a CSR-driven strategy, as it was a corporate-led initiative between the MNCs and retailers.Footnote 172 The Alliance was aligned to Carroll’s notion of CSR, namely a voluntary commitment by corporations motivated by business interests,Footnote 173 and was designed for self-regulating the industry. Failing to comply with these codes could have consequences such as that the factories could be disciplined and sanctioned and that there could be a loss of a contractual relationship.Footnote 174
In terms of the efficacy of the Accord or the Alliance, as of 10 November 2017, the Alliance had 658 active factories amongst which 234 factories had completed their Corrective Action Plans. Similarly, the Accord showed impressive results and by April 2018, 84% of issues identified in their initial inspections had been remedied.Footnote 175 It has been the most effective initiative taken so far for creating a safer work environment, but a substantial amount of structural renovation such as automating fire alarms remains outstanding in many factories.Footnote 176
After the five-year period, the government initially planned to replace the Accord with Bangladesh’s national regulatory mechanisms called the Remediation and Coordination Cell;Footnote 177 however, the Accord’s remit was extended until May 2021.
9. Attempts from home to govern MNCs operating abroad
Traditionally under international law, it is understood that states have the sole responsibility to protect human rights rather than non-state actors, such as companies.Footnote 178 In fact, international law has been “virtually silent when it comes to corporate liability for violations of human rights.”Footnote 179 But MNCs operate globally and not just within their states, and corporations have immense power to do great harm or even good in the sphere of human rights, both internationally and domestically where they operate.Footnote 180 Although there might be an assumption that human rights do not belong in the corporate law realm, as they are related to social issues, when a company hires an employee, it makes a social decision.Footnote 181
As a general rule, companies produced CSR reports voluntarily, but that is now changing due to government regulations on mandatory non-financial reporting being imposed.Footnote 182 Thus, many countries are now emphasizing the importance of transparency in supply chains by creating reporting requirements for MNCs. Transparency in supply chains can benefit the brands by strengthening their trademarks and protecting goodwill.Footnote 183 As goodwill is an intangible asset for a company, companies should protect their reputation by maintaining transparency in their supply chains, which can lead to more positive brand recognition.Footnote 184 Moreover, showing transparency can illustrate CSR, as reporting can publicly show consumers how consumers commit to social justice instead of hiding violations in supply chains.Footnote 185 For instance, in the last decade many countries such as the UK, France, Denmark, Norway, Australia, South Africa, India, and Malaysia, for example, have announced mandatory CSR reporting requirements.Footnote 186
Some of the recent legislation in the US and the EU is based on the premise that corporate disclosure allows stakeholders to be informed about corporate compliance with their codes of conduct and details of their supply chains.Footnote 187 But do these initiatives privilege the interests of the supply chains in the developing world such as Bangladesh? The following part of the paper briefly examines the laws and regulations in place in the US and the EU that affect supply chains as an in-depth analysis is not within the scope of this paper.
9.2 The US
The US government has created numerous policies to improve working conditions in the garment factories. Home state laws to regulate MNCs abroad may often be seen to “constitute an unacceptable intrusion into the host State’s sovereignty.”Footnote 188 To avoid some of the jurisdictional problems arising out of companies committing torts outside their state of incorporation, the US has the Alien Tort Claims Act (ATCA).Footnote 189 The ATCA allows foreign citizens to bring cases to the US and gives the courts jurisdiction to hear cases concerning human rights abuses committed outside the US.Footnote 190 Since the landmark case of Doe v. Unocal in the US, at least 50 cases have been brought under the ATCAFootnote 191 claiming human rights abuses abroad. In America, slavery was abolished in 1865, yet the country only became aware of human rights abuses in corporate supply chains during the 1990s. In 1992, it was reported that Walmart produced goods through its supplying factories in Bangladesh that employed child labour.Footnote 192 As billions of US dollars are spent by consumers that turn a blind eye to this inhumane system, the California Act aimed to remedy the problem, as discussed in the section to follow.Footnote 193
9.3 California’s Transparency in Supply Chains Act of 2010
California’s Transparency in Supply Chains Act of 2010 (CTSCA) requires corporations to disclose the efforts taken to observe and eradicate slavery from their supply chains.Footnote 194 California was the first governmental entity to codify supply chain disclosures and their legislative implementations are often the foundational model that other American states seem to follow.Footnote 195 Since its enforcement in 2012, all large companies in California have been required to disclose the extent to which they have verified their products in supply chains to address risks of slavery and forced labour.Footnote 196 Companies are required to publish the following on their websites: (1) whether they conduct audits of their suppliers to evaluate the risk of slavery; (2) whether the suppliers certify that their products are free from slavery and comply with the law; (3) whether there are procedures and accountability standards internally to hold those liable for non-compliance; and (4) whether they provide training to companies and employees on the issue of slavery.Footnote 197
It is estimated that around 3,200 companies fall within the scope of this law.Footnote 198 Moreover, the Act should have a significant impact considering California is the fifth-largest economy in the world, estimated at USD2.75 trillion.Footnote 199 It is worth noting that these mechanisms do not provide any mandatory standard for what constitutes due diligence and, further, there are no penalties for failing to take these steps.Footnote 200 In fact, the wording from the Act implies that companies should provide details of their performances but at the same time specifies that failing to do so would not breach the law.Footnote 201 Therefore, there have been concerns that this might result in “cosmetic compliance” reporting rather than actual substantive reporting.Footnote 202 Nonetheless, the California Act may promote an indirect effect of retail supply chain competitiveness that is similar to the RugmarkFootnote 203 or FIFAFootnote 204 soccer ball logo, which increases the chance that companies will develop clauses in supply chain contracts to remain competitive in the market and gain consumer favour.Footnote 205 For instance, in the US, companies like GAP and Nike, due to their negligence in supply chains, have faced the consequences of negative reputations in the past and hence they have now employed greater safeguards and were thus among the first companies to publish extensive disclosures on their supply chains in compliance with California’s law.Footnote 206
Kohl’s is one such company that is required to disclose information under this Act. An examination of Kohl’s website indicates that Kohl’s has ticked all the above boxes in its 2020 ESG statement. Thus one might wonder whether not paying the workers after work was done and therefore exploiting the vulnerable in their supply chains during the pandemic may have hindered the company in any way from being a good corporate citizen. It is ironic to see that Kohl’s states on its website that it has audited factories in its supply chains to evaluate any risk of slavery, but that the company itself refused to pay the poor workers after work was done, which might fall within the definition of slave labour itself. Therefore, whilst MNCs may decorate their websites with CSR statements, the question remains of what legal obligations are in fact included in their contracts.
9.4 The European Union (EU)
The EU has taken several steps in ensuring liability for corporate-related human rights abuses.Footnote 207 One of the most important developments has been the legislative measure that mandated non-financial reporting. This EU Directive 2014/95 (EU) which is known as the CSR Directive, is based on the Disclosure of Non-Financial and Diversity Information by Certain Large Undertakings and came into effect on 6 December 2014.Footnote 208 This Directive was implemented by all Member States by December 2017.Footnote 209
Ninety-eight of the world’s largest public-traded garment companiesFootnote 210 that are leaders in human rights issues are from within the EU. Although many of these companies may work proactively to avoid and prevent human rights abuse, there have been many reports of abuses in their supply chains.Footnote 211 For instance, in 2012, a case against the retail company KiK was brought to Germany after an incident that killed workers in a Pakistani garment industry.
The CSR Directive requires public interest companies with over 500 employeesFootnote 212 to publish a non-financial statement declaring issues such as the policies and procedures they have regarding environmental protection, employee protection, social responsibility, board diversity, anti-corruption, and human rights.Footnote 213 Thus, states within the EU have taken regulatory measures that demand transparency through reports and disclosure of information on issues such as efforts taken for due diligence on human rights in supply chains.Footnote 214 Where a corporation fails to pursue policies based on the matters required by the Directive, it needs to provide a clear and rational explanation for not doing so.Footnote 215 The EU Directive is broader than the California Act, as it focuses on all kinds of human rights impacts, not just on slavery and human trafficking.Footnote 216 However, the EU’s CSR Directive appears to have a rather discretionary approach towards supply chain reporting.Footnote 217
9.5 Positive steps toward global governance of CSR, MNCs, and supply chains?
There remains a specific gap when it comes to transnational supply chains, as the broader mandatory requirement under any national corporate law does not encompass obliging companies to perform their social responsibilities in supply chains.Footnote 218 Thus, CSR plays an important role in filling in that global governance void. Although it is difficult to find a comprehensive solution to the global governance problem, the mandatory reporting requirements have created a positive trend internationally to deal with transparency of MNCs in supply chains, albeit to a limited extent. It is suggested that mandatory disclosure would be more effective if the requirements were on more specific problems (like working conditions in supply chains) rather than broad issues like eradicating slavery, as required by the CTSCA.
Before presenting our conclusions, it is appropriate to point out some limitations of the research undertaken for purposes of this article, which is limited in its scope and cannot be too lengthy. First, for the purposes of this research, there was not time to collect any empirical data on the discussed issues. It resulted in limited scope to involve in an in-depth analysis of the possible solutions for the Bangladeshi garment industry through corporate governance mechanisms. For future research, it is suggested that more detailed case analyses and case-studies could also be beneficial to create greater certainty in this complex but very important area of the law. Future detailed research is also suggested on mandatory disclosure requirements of MNCs within the Bangladeshi context, especially in light of the significant development internationally in the sphere of expectations that MNCs report on and disclose more comprehensively on non-financial issues and matters.
As part of our conclusion, we need to emphasize the importance of appreciating where we are now—a definitive moment at which the COVID-19 pandemic forced us, as beings that pride ourselves that we are at the top of the food chain, to do serious stocktaking of almost everything we took for granted for many decades. Schwab and Malleret put it very well:
Existential crises like the pandemic confront us with our own fears and anxieties and afford great opportunities for introspection. They force us to ask the questions that truly matter and can also make us more creative in our response. History shows that new forms of individual and collective organization often emerge after economic and social depressions. … In times of adversity, innovation often thrives—necessity has long been recognized as the mother of invention.Footnote 219
Given that the rich economies were in a far better position to deal with economic rescue plans by adding enough capital to support their own companies, it is safe to state that MNCs have been in a much better position than most of their suppliers when the COVID-19 pandemic hit economies worldwide. But instead of providing a helping hand and behaving ethically, the pandemic has revealed unfair contractual relationships between the parties. MNCs gave little thought, if any, to their moral or social responsibilities towards supply chains simply because CSR is considered voluntary. Thus, it had no legal consequences to leaving the supply chains in the cold. Many of these MNCs had policies and purported to operate under codes of conduct promoting good corporate governance practice. However, at the end of the day, they were meaningless as far as their supply chains were concerned—good intentions clearly do not lead to responsible and ethically (or morally) acceptable behaviour by corporations. In other words, lip service is paid to their wider social responsibilities, illustrated by the fact that they will profess publicly that they fulfil these responsibilities, and even get involved in some allegedly admirable socially uplifting activities and deeds. But COVID-19 revealed that in fact they were mostly distracting the society and consumers’ attention from their only real aim, namely profit maximization for shareholders.Footnote 220 The garment industry in Bangladesh has faced tremendous CSR challenges over the years resulting from building collapses (Rana Plaza), low wages, horrific working hours, and abuses of human rights, to name but a few. The COVID-19 pandemic has exhibited a reflection of pre-existing problems in the garment supply chains and brought to the surface some additional injustices and practices with huge impacts on the workers and the environment. As the global garment industry is built on a system with unequal risk allocation, the economic risk is pushed down onto the suppliers as much as possible by MNCs.Footnote 221 Although there have been efforts from home states such as the US and the EU to create transparency in supply chains and regulate CSR by non-financial reporting, etc., research suggests that superficial compliance is not enough to satisfy and fundamentally change unconscionable and unethical corporate behaviour. Also, reporting requirements on broad issues like eradicating slavery as covered by the CTSCA fail to address the common problems in this industry, resulting in little or no impact at all.
We predict that corporate law and corporate governance will not be seen in the same light in the future because of the COVID-19 pandemic. While the ongoing pandemic provides an exciting opportunity to call for new initiatives to support workers across supply chains, which could change the world and society for the better, the industry will likely fall back to a business-as-usual-approach if nothing is done.Footnote 222 Thus, there are huge challenges ahead to reform corporate law and corporate governance models and practices, and to ensure enforcement/compliance. This is long overdue to deal with a pandemic of a different nature that was rife in the garment industry in Bangladesh long before the COVID-19 pandemic. However, the COVID-19 pandemic illustrated how vulnerable we are as human beings and it accentuated the disturbing widening gap between the rich and the poor, with little or no attention paid to this by most MNCs. It is to be hoped that this will change in the future.
The research for this article is primarily based on research undertaken by Ninia Reza for her PhD thesis, but she would like to thank Professor Jean du Plessis for his considerable input in writing this article. This article is dedicated to her late father, Dr Sadrel Reza.