Gap, Inc., is trying to incorporate human resource and supplier considerations into its management decision making. Here is Gap’s report of findings from a recent Social Responsibility Report:
Because factory owners sometimes try to hide violations, Gap emphasizes training for factory managers. However, due to regional differences, the training varies from one site to another. The report notes that 10 to 25 percent of workers in China, Taiwan, and Saipan have been harassed and humiliated. Less than half of the factories in sub-Saharan Africa have adequate worker safety regulations and infrastructure. In Mexico, Latin America, and the Caribbean, 25 to 50 percent of the suppliers fail to pay even the minimum wage.
Calvert Group, Ltd., a mutual fund family that focuses on “socially responsible investing,” had this to say about the impact of Gap’s report:
With revenues of $15.9 billion and over 300,000 employees worldwide, Gap leads the U.S. apparel sector and has contracts with over 3,000 factories globally. Calvert has been in dialogue with Gap for about five years, the last two as part of the Working Group.
Gap’s supplier monitoring program focuses on remediation, because its suppliers produce for multiple apparel companies and would likely move their capacity to different clients rather than adopt conditions deemed too demanding. About onethird of the factories Gap examined comfortably met Gap’s criteria, another third had barely acceptable conditions, and the final third missed the minimum standards. Gap terminated contracts with 136 factories where it found conditions to be beyond remediation.
Increased transparency and disclosure are crucial in measuring a company’s commitment to raising human rights standards and improving the lives of workers. Gap’s report is an important first step in the direction of a model format that other companies can adapt.8
If Gap were to aggressively pursue renegotiations with suppliers, based on this report, what is the likely effect on Gap’s expenses in the next 5 years? In your opinion, what would be the impact on its stock price in the immediate future? After 10 years?