Why Most American Companies Didn't Sign the Bangladesh Safety Agreement

Earlier this week, H&M joined other retailers in signing a landmark Bangladesh factory safety plan. The five-year plan, according to USA Today, “requires independent inspections with public reports and signers to pay for mandatory safety upgrades. It also requires companies to cut off business with any factory that refuses to make necessary upgrades, and it gives workers and their unions a role in the process.”

After H&M’s announcement, the Dutch retailer C&A also joined the agreement, as did the British retailers Primark, Marks & Spencer and Tesco, Italian fashion brand Benetton, Spanish retailer Mango, French retailer Carrefour, Canadian grocer Loblaw, Spanish department store chain El Corte Inglés, the Spanish fashion group Inditex (the parent company of Zara).

These companies have joined two others that signed the agreement last year: PVH, the American apparel company which makes clothes under the Calvin Klein, Tommy Hilfiger and Izod labels, and German retailer Tchibo.

If you look at the list of the companies that signed the agreement so far you can’t help but notice that out of the 12 companies mentioned, only one is American, and it doesn’t include even one major American retailer or fast fashion company.

So what could be the reason that major European companies sign this agreement while American companies like Gap, Walmart, Sears, J.C. Penney and Target refuse to do so? Are European fashion companies and retailers simply more responsible than their American counterparts or is there something else here that can explain this phenomenon?

Looking at the information provided by the companies in the last couple of days, we could identify four explanations:

1. European consumers are perceived as more sensitive to ethical issues – We mentioned here before that in general value consumers focus on price and are generally less responsive to ethical propositions, but it might be that this notion is stronger in the U.S. than in Europe.

Earlier this month, The Guardian reported that America's Research Group, which interviews 10,000 to 15,000 consumers a week, mostly on behalf of retailers, said that “even in the aftermath of two deadly tragedies in Bangladesh, [American] shoppers seem more concerned with fit and price than whether their clothes were made in factories where workers are safe and make reasonable wages.”

Now, I’m not sure if European consumers are really that different when it comes to consuming fast fashion, but I do have a feeling that this is the way European consumers are perceived by European fast fashion companies. Here’s what Helena Helmersson, Head of Sustainability for H&M said in an interview last year: “Consumers are increasingly showing an interest in sustainability. Adding sustainability value to our products is therefore an important way of strengthening our customer offering.”

2. American companies don’t like to lose control - This could also be a cultural issue. European companies that operate in a more regulated environment might feel more comfortable giving control to third-party stakeholders, while American companies are used to a voluntary environment when they set up the rules, enforce them and have a full control over every little part of the process.

This approach is maybe best reflected in Walmart’s efforts to set up its own safety plan, which the company believes “either meets or exceeds” the group safety plan, and would get quicker results. Walmart explained that it operates on its own because the Bangladesh safety agreement “introduces requirements, including governance and dispute resolution mechanisms, for supply chain matters that are appropriately left to retailers, suppliers and government, and are unnecessary to achieve fire and safety goals.”

3. Litigation concerns – Gap, which as of Wednesday is reported to actually be very close to signing the agreement, explained that it is mostly concerned about the liability part of the plan. As a result, the company proposed changes that would greatly limit any legal liability for a company that violated the plan.

“The U.S. is quite litigious,” Bill Chandler, a Gap spokesman, told the New York Times. “We put forward specific proposals that we thought would bring other American retailers into the fold. We thought it would be a step forward and would turn it into a much more global agreement.” Talking to USA Today, he added that it’s easier for European companies to sign the agreement because they "operate in a much different legal landscape."

Some didn’t find this explanation acceptable. “Gap’s demand is that the agreement be made unenforceable — and therefore meaningless,” Scott Nova, executive director of the Worker Rights Consortium, a group sponsored by 175 colleges and universities, told the Times. “What Gap wants is the right to renege on its commitments when it wishes.”

4. Doing it the Apple way – Some American retailers seem to want to follow Apple’s strategy for handling the Foxconn crisis, or, in other words, adopting a reactive strategy based on the company’s belief that it can provide the best possible solution, solely decided on the level of responsibility or transparency the situation requires.

Take Sears, for example. The company’s spokesman told USA Today that it "will continue to assess the overall risks in each factory in Bangladesh that produces our merchandise, with added scrutiny towards fire safety and building integrity. Factories that cannot reach an acceptable level of compliance with the requirements of our Global Compliance program will be terminated."

The only thing that is not clear is if these companies remember how this approach worked for Apple who eventually had to agree to almost everything it objected to at first. Don’t be surprised to have a rerun of that episode in the upcoming weeks.

[Image credit: SumOfUs]

Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.