Ethical Issue That Patagonia Has Faced - Modern Slavery

In 2011, Patagonia discovered “modern slavery” in their supply chain (Simpson, 2015). Patagonia was unaware of this issue until their social responsibility audit in 2011 revealed shocking facts. Patagonia discovered that “seven of [its] suppliers in Taiwan employ migrant workers and have some egregious employment practices” (Patagonia, “How a deeper dive…, n.d.). These migrant workers were required to use labor brokers to place them in factory work. These labor brokers charged $7000 and often charged above legal limits (Patagonia, “How a deeper dive…, n.d.). Paying off this broker fee was nearly impossible, and it could take workers up to two years to pay off the broker fee and most labor contracts only lasted three years (Patagonia, “How a deeper dive…, n.d.). After those three years, the worker had to return home and restart the process and fees (Patagonia, “How a deeper dive…, n.d.). In short, this was modern day slavery. 

How Patagonia Was Impacted

Patagonia takes pride in the “high standards to which [they] hold [their] factories” (Patagonia, “How a deeper dive…, n.d.). It was a shock when Patagonia discovered the horrendous labor practices in their factories. These practices went against Patagonia’s values and beliefs. Patagonia portrays itself as more than just a retail company. Patagonia prides itself in its environmentalism, quality, integrity, and justice (Patagonia, “Our core values,” n.d.). Its website serves as more than just an online store. It is filled with information and articles on ethical and environmental issues. They have a large following of loyal customers that share Patagonia’s views. If handled incorrectly, this issue of unethical labor practices could have brought the company to the ground due to their very ethical clientele. Patagonia had to make changes if it wanted to retain its customers and its brand image. Thankfully for Patagonia, it approached the issue in a very good manner (which we will discuss in a moment) and did not face any major repercussions from this discovery of modern slavery. Many costly steps had to take place but the manner with which they approached the issue was admirable. 

How Stakeholders Were Impacted

Stakeholders were not majorly affected by the discovery of modern slavery. The way with which Patagonia approached the issue further displayed the company's values and beliefs to the public and their customers. They remained true to their values and were very honest.  In 2011, Patagonia became a B Corp with certification from B Lab (Loughman, n.d.). This was beneficial for stakeholders as becoming a B Corp legally bound Patagonia to consider the interest of stakeholders (Loughman, n.d.). Becoming a B Corp was also most likely an intelligent financial move for stakeholders as B Corp startups have a “higher survival rate than new businesses” (Patagonia, “Three guides for going B…,” n.d.). 

In 2011, despite the discovery of modern slavery in their factories, they saw a 30% increase in sales and the “best yearly profit in about 20 years” (Clucas, 2012). By 2012, the company saw a 30% increase in revenues followed by another 5% growth in 2013 (Thangavelu, 2022). In 2015, even after their public announcement regarding modern slavery in their factories, Patagonia sales reached a new peak of $750 million (Sirtori-Cortina, 2017). Patagonia has been extremely successful despite this ethical issue. Thanks to the approach they took in addressing this issue, no stakeholders suffered, and revenues continued to grow. 

Figure 1

Growth of Patagonia net sales in million US$

Note. This image was taken from “eCommerce net sales development of patagonia.com,” by E-CommerceDB.

 

How Patagonia Responded

In 2011, when Patagonia's social responsibility audit revealed that factories in their supply chain in Taiwan have shocking employment practices which are the equivalent to modern slavery, they got to work instantly to fix it (Patagonia, “How a deeper dive…, n.d.).  They set out to develop a new migrant work standard, institute changes in their supply chain, repay current workers, help alert other to the problem and need for change, and share their renewed standards with other companies that also want to eradicate these labor practices (Patagonia, “How a deeper dive…, n.d.). They began by creating a strategy to improve their practices and they developed a short-, medium-, and long-term human trafficking remediation strategy (Patagonia, “How a deeper dive…, n.d.):

Figure 2

Patagonia’s short-, medium-, and long-term human trafficking remediation strategy

Note. This image was taken from “Migrant Worker Employment Standards & Implementation Guidance” by Patagonia.

Phase 1 - Research & Launch

• Convene brands working on same issue
• Collect data
• Develop migrant worker standards
• Educate suppliers
• Launch program to our Taiwan suppliers via an in-person seminar in Taiwan with top Patagonia executives
• Finish in-depth focused migrant worker audits

Phase 2 - Remediation

• Provide support to suppliers via training and consulting
• Check and adjust program to maximize and accelerate sustainable remediation
• Monitor and report progress
• Meet with Taiwanese government to leverage their knowledge and training and support services.

Phase 3 - System-wide Scaling

• Launch standard to entire supply chain
• Share standards and our journey publicly
• Reconvene interested brands
• Continue to form industry partnerships to scale program to all migrant workers in Taiwan

 

In 2014, they partnered with Verité - a nonprofit, non-government organization with the mission to ensure that everyone worldwide works under safe, fair, and legal conditions (Patagonia, “How a deeper dive…, n.d.). Together, they developed Patagonia’s Migrant Worker Employment Standards and Implementation Guidance document that covered every aspect of “employment, including pre-hiring interactions, labor contracts, wages and fees, retention of passports, living and working conditions, grievance procedures and repatriation” (Patagonia, “How a deeper dive…, n.d). In December 2014, Patagonia hosted a forum for their Taiwanese suppliers, explaining the new standard. This new standard required them to stop charging fees to migrant workers hired on or after June 1, 2015, and that the suppliers either had to pay the fees themselves or hire workers without using labor brokers (Patagonia, “How a deeper dive…, n.d.). Patagonia also mandated that the suppliers repay current workers (those hired before June 1. 2015) all broker fees that exceeded the legal amount (Patagonia, “How a deeper dive…, n.d.). The suppliers responded with interest and were committed to Patagonia’s values and beliefs in eliminating human rights issues in the supply chain (Patagonia, “How a deeper dive…, n.d.). Their work was so well done that in January 2014, the White House invited Patagonia’s COO and director of Social and Environmental Responsibility to present their work at the White House Forum on Combating Human Trafficking in Supply Chains (Patagonia, “How a deeper dive…, n.d.).

On June 03, 2015, Patagonia released a blog post describing their journey to correcting these poor labor practices. They released their standard publicly and included a detailed timeline of their work. They did not shy away from what they discovered and took full responsibility. The manner with which they dealt with this issue rings true with the values this company holds dear.