Wal-Mart toughens regulations after Bangladesh fire

January 22, 2013: 4:05 PM ET
bangladesh factory textile fire
A fire at a Bangladesh apparel factory that made items for Wal-Mart killed 112 workers in November, prompting the retailer to tighten its regulations.
NEW YORK (CNNMoney)

Wal-Mart will be coming down harder on suppliers who violate its global sourcing standards, the company said Tuesday.

The nation's largest retailer said it will implement a "zero tolerance" policy for any supplier who subcontracts work to factories without its knowledge. Effective March 1, Wal-Mart (WMT) will sever ties with suppliers who don't comply. The company previously gave suppliers three chances to address issues.

The changes come in the wake of a deadly fire in November at a Bangladesh apparel factory that manufactured items for the retailer. Wal-Mart said the Tazreen Fashions factory was not authorized to produce merchandise for the retailer, and that a supplier had subcontracted work to the factory without permission.

As it stands, Wal-Mart conducts thousands of audits each year on factories that supply private-label and non-branded goods to Wal-mart. The audits, completed by independent firms, happen every six to 24 month to assess safety and work conditions.

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But there is no transparency in the findings and no way for consumers to hold them accountable, according to Scott Nova, executive director of the Worker Rights Consortium. Wal-Mart's audit reports aren't published online, nor are they shown to factory workers.

The retailer will tighten its auditing regulations, requiring factories to pass audits before a supplier is allowed to do business with them. But the new policy does not say that the results will be made public.

"They're essentially saying, 'Trust us that this time we really mean it,' but neither you nor I are going to know what happened in the audits," said Nova.

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As part of the new rules, Wal-Mart will require all factories in Bangladesh to undergo an electrical and building safety assessment from an independent agency.

"While an overall global approach is necessary, there is a need for heightened attention to the risks specifically related to building structure in Bangladesh," the company said in a 10-page letter to suppliers Tuesday.

Another problem: While fire regulations will be tighter across the board, they still don't require external fire escapes, which Nova calls the most important safety feature in factories. Wal-Mart's policy states that external fire escapes are preferable, but not mandatory.

"The most urgent reform is the most expensive reform, which is why it won't get done with the prices Wal-Mart requires of them," he said. "But if they don't create these exits, then the factories aren't going to be safe."

Wal-Mart said that its building safety reviews will make sure there are clear, safe exits for workers to escape safely in the event of a fire.

"Just because it doesn't say we're requiring external fire escapes doesn't mean that we're not going to require safe exits," said Brooke Buchanan, a Wal-Mart spokeswoman.

Nova said these new policies are just a drop in the bucket -- rhetoric that's gussying up the same regulations that haven't worked in the past.

He said there is no reason for anyone to believe that Wal-Mart is serious about following through, since the retailer squeezes its suppliers so much on price that the factories can't afford to make upgrades.

"Factories aren't going to be able to afford the significant investments Wal-Mart's asking them to make," he said.

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