Top Glove, Kossan, Hartalega, and Supermax - : A Textbook Case of CSR Failure

 

Debt Bondage Payouts Flow to Workers in Malaysia’s Glove Industry

Has an American import ban and the repayment of over $100 million to migrant workers by glove makers reduced forced labor risks?

 

For years, debt bondage risks have been rampant in Malaysia’s glove industry, the world’s biggest, due to exorbitant recruitment costs for its migrant workforce. Now, the industry is weeding out that risk by repaying recruitment fees to its employees. 

Within a year, tens of thousands of glove workers received tens of millions of dollars. Just a year ago, no one believed it was possible.

“I had no hope for it,” said Shalva*, a Nepalese employee in one of Supermax’ glove factories. “Then suddenly, the money was coming.” By June 2021, he received the final transfer of the total $1,300 (around five months’ base wage) remediation for fees he paid recruiters in Nepal to secure his job. 

Top Glove, maker of a quarter of the world’s 360 billion disposable gloves annually, is leading by example. A year ago, Malaysia’s “Big 4” manufacturers – Top Glove, Kossan, Hartalega, and Supermax – announced repayments of $36 million, $12.5 million, $9.5 million, and $5.5 million, respectively. Now, they have completed unprecedented repayments to over 20,000 workers. Some have more to come.

How did such exceptional developments happen within a year? Are workers truly free of bondage? What about the other forced labor risks haunting the industry?

Underreported Slavery: Silence Before the Storm

Malaysia’s glove industry accounts for 65-70 percent of the world’s disposable gloves and relies on cheap labor from countries such as Bangladesh, Nepal, and Myanmar. Forced labor risks are widespread, partly driven by deceptive recruiters in poorer neighboring countries charging job seekers exorbitant fees up to $4,800 (more than one year’s pay including lots of overtime), and partly by coercive work-floor practices such as passport retention and punitive management.

For years, Western medical companies and hospitals paid little attention to forced labor by Malaysian glove suppliers. International civil society watchdogs such as media and NGOs rarely focused on the issue. Local groups, unions, and media in Malaysia had little capacity or space to voice concerns in a significantly curtailed civil society.

Shalva was hired by Supermax several years ago, when he had just become a father. His family felt lucky that he had secured a well-paid job abroad, so he could wire remittances back to his wife and son.

“We paid recruiters whatever they demanded,” said Shalva. “I paid and left my family, like everybody else.” His colleagues sitting next to him during my interview in July 2021 concurred. Supermax interviewees two years ago in Malaysia shared similar stories. All paid huge fees in Bangladesh and Nepal to get jobs. Many obtained high-interest loans that took years to repay. 

When Shalva and the other interviewees arrived in Supermax facilities, their passports were confiscated, and the 12-14 hour workdays began, seven days per week. It wasn’t until late 2019 that workers had free access to their passports, and by late 2020 they had a week-day off, they said.

Workers from Top Glove, Hartalega, YTY and other glove manufacturers told comparable stories about fees and working conditions a few years ago. “We feel it is worse than slavery. Slaves work for free, but we pay money to work” a Hartalega employee said in 2019. 

Breakthrough: Millions in Repayments to Migrants

Everything changed on July 15, 2020, when the U.S. government banned disposable glove imports from Top Glove due to forced labor concerns. Customs and Border Protection (CBP) is mandated to issue such import bans by the Tariff Act of 1930, though it was widely considered ineffective until President Barack Obama closed a loophole in the law five years ago. After that, it was increasingly and powerfully applied by the Trump administration. CBP also opened investigations into forced labor allegations at Supermax and Hartalega. 

In early 2021, CBP’s concerns were upgraded to a conclusive finding that Top Glove “is manufacturing disposable gloves with forced labor and that such merchandise is likely being imported into the United States.” In May 2021, Top Glove shipments of millions of gloves were seized by CBP in Cleveland and Kansas.

Three days before the ban, the glove maker had confidently issued a press release titled, “Top Glove ensures no debt bondage among foreign workers.” Three weeks after, Top Glove promised repayments. Other manufacturers quickly followed suit with similar promises to eliminate debt bondage risks. 

Initially, concerns were voiced about the long time spans of repayment. “Some glove manufacturers wanted repayments to be spaced out over extended time, which could act as yet another way of binding workers to employers, although potentially unintended,” said Archana Kotecha, CEO of The Remedy Project, a social enterprise.

The bigger glove manufacturers seemed responsive to that reasoning, as Top Glove, Hartalega and Kossan completed their reimbursements processes 25-50 percent ahead of initial schedules. By April 2021, Top Glove had reimbursed 150 million Malaysian ringgit ($36 million) to around 13,000 current and eligible former workers.

Kossan completed repaying over 5,500 workers a total $12.5 million with a final $6 million transfer at the end of June 2021. Simultaneously, Hartalega finished its reimbursements process of $9.5 million to current workers who joined the firm prior to April 2019. “We have fully reimbursed all migrant workers who are currently employed at Hartalega. We continue to reimburse eligible former workers,” a Hartalega spokesperson said in August of this year.

Supermax had remedied nearly 1,750 workers by June 2021 and said it “has allocated RM23m ($5.5m) which is inclusive of remediation payment to the contract workers as well. We have fully paid to all our direct workers and in the case of the contract workers, they will also be fully paid in due course.”

More glove makers committed to repay foreign employees’ fees. Ansell finished repayments in January 2021 and YTY did so in June 2021. Semperit is repaying over $1 million to 500 workers. Brightway promised to repay $9 million to 2,700 workers. WRP Asia Pacific promised around $5 million to around 1,600 workers. Others committed to remediation for which The Diplomat has no official confirmation. The total amount exceeds $100 million.

“Repaying workers the fees and costs they have incurred provides vital remedy to workers who have been duped and kept in debt bondage,” said Rosey Hurst, Director of the ethical trade consultancy Impactt. 

In mid-September 2021, the U.S. CBP lifted the import ban on Top Glove and said there was satisfactory evidence that the disposable gloves were no longer manufactured with forced labor.

Drivers: Catalysts for Positive Change

The U.S. import ban on Top Glove in 2020 was paramount for the developments. But the CBP doesn’t operate in vacuum. Banning imports requires indicators and evidence of forced labor, and the U.S. agency has no capacity for extensive on-the-ground investigations. It relies, at least partly and initially, on qualified evidence from others.

The lead-up to the ban saw a number of key developments. The preceding year, investigations by Reuters, The Guardian, The Diplomat, and Channel 4 continuously and increasingly revealed abusive conditions to the public. 

Also in 2019, comprehensive audits by Swedish public procurers documented serious forced labor risks at three of the “Big 4” glove makers in Malaysia. Instead of relying on auditors who overlooked abuses, the Swedes went looking for trouble – and found it. 

One individual stood out, too. If the U.S. import ban’s importance is impossible to overemphasize, it is equally impossible to overemphasize the role payed by the British activist Andy Hall. Crucial for creating and maintaining awareness on exploitation in the glove industry, he supplied governments, brands, auditors, investors, media – basically anyone who cared to listen – with steady streams of leads and documentation, while being quoted in numerous articles.

That advocacy comes with a price. Outspoken critics of corporate abuse and hypocrisy in countries with strict defamation laws are rare. For years, Hall has been discredited and even prosecuted by corporate elites for his annoying attitude, for persistently speaking out. 

“Since late 2018, I learned about migrant glove workers’ inhumane situation through hundreds of interviews. At the same time, the ‘developed’ world kept claiming that human rights were protected in supply chains by government procurers and business,” he said. “I had no choice but to explode and expose the hypocrisy.”

Western Medical Firms: A Textbook Case of CSR Failure

Corporate Social Responsibility (CSR) was invented 30 years ago to mitigate abuse at foreign suppliers of Western brands that increasingly outsourced their production to low-cost countries. To address the global regulation gap, voluntary CSR efforts by ethically-minded brands were hailed as the way to ensure decent working conditions abroad.

The Malaysia glove case is a textbook case of a CSR failure. Over the years, Western medical firms imported billions of disposable gloves from Malaysia, where forced labor risks were endemic.

The hypocrisy was further cemented by the fact that no foreign buyers reportedly contributed financially to the reimbursements paid by their Malaysian suppliers to migrant employees, though they are key beneficiaries of the exploitation.

The Malaysia case is not an exception. Recently, the medical industry has been linked to Chinese and North-Korean forced labor and child labor in Pakistan. 

Medical firms like the American Fortune 500 firms McKesson, Owens & Minor, O&M Halyard, and Henry Schein, and others including Medline Industries, Ansell, Abena, B. Braun, and Paul Hartmann, are long-time customers of Top Glove, Supermax, Hartalega, YTY, and other glove makers named in earlier Diplomat, Der Spiegel and Le Monde diplomatique investigations. Lohmann & Rauscher source from Semperit in Malaysia, while Kimberly-Clark and Ansell source from Brightway, where a raid last year revealed conditions described by a Malaysian minister as akin to modern slavery.

Public and private procurers in the United States and Europe likewise failed at practicing what their CSR policies said on paper. U.S. federal procurement included gloves produced by Supermax and Henry Schein, as well as importers of Hartalega, YTY and WRP gloves. German procurers such as Prospitalia, EK-UNICO, and GDEKK source from several of the aforementioned Western importers of Malaysian gloves. U.K. hospitals source from Top Glove, Supermax, Kossan, Hartalega, Ansell, and Brightway. Denmark’s and Sweden’s hospitals and healthcare providers are longtime customers of Top Glove and Hartalega. Canadian hospitals and healthcare contractors source from some of the Malaysian glove makers.

The list goes on and on, thanks to shipment data from Panjiva, EU procurement data from OpenTender.eu, U.S. procurement data from GSA, and verifications by procurers and companies.

Investors such as the American asset manager BlackRock and Norway’s Government Pension Fund, the world’s biggest sovereign wealth fund, are shareholders of Top Glove and have pocketed sky-rocketing dividends due to the pandemic. BlackRock didn’t engage Top Glove on forced labor until they learned about it from media investigations in 2018. None of them took visible actions until after the U.S. ban, when they both voted against reelecting Top Glove directors in January 2021. 

Other financial institutions also reacted on the U.S. ban: In June 2021, the Malaysia Stock Exchange removed Top Glove from its responsible investment indexes, and the ban made Top Glove postpone its listing on Hong Kong’s stock exchange.

“It is critical that the response of financial institutions including investors be a lot more proactive rather than reactive,” said Archana Kotecha of the Remedy Project. “Enough is known about the ESG [Environment, Social & Governance] profile of various sectors in order to stimulate more probing diligence activities and impact assessments to identify and manage risk and use leverage to make change where needed. The financial sector can be doing more and should be doing more.”

Social Audits: Part of the Problem

Audit firms are key players in understanding, and maintaining, the current mess. Auditors are paid by glove makers or foreign buyers to check workplace conditions. Potential conflicts of interest for auditors arise if, to retain business, they feel compelled to report positively. Potential conflicts of interest for brands and manufacturers arise if, to retain profits, they feel compelled to ignore labor violations detected by auditors. Audit reports are not made public.

Top Glove alone had 28 social audits conducted in 2017-18 and more than 100 since January 2019, including audits by Amfori-BSCI and Sedex-SMETA. 

Several glove importers told The Diplomat they were not aware of debt bondage issues until after the 2018-19 media revelations, even though audits are done continuously. Professionals involved in audits of glove makers, requesting anonymity, say that the debts due to recruitment fees issue is well-known, but not traditionally considered a forced labor indicator.

Top Glove received the top-rating “A” by an Amfori-BSCI audit a month prior to the U.S. ban. The “A” rating was downgraded to “D” a few months after the ban following an intensive Amfori-BSCI review of the audit report.

An audit report shared with The Diplomat by Supermax covers its Maxter Glove facility and found no evidence of forced labor, no retention of passports, no recruitment fees paid, no fines or other disciplinary actions identified, and no subcontracted workers. However, Shalva and his colleagues said the exact opposite, and Supermax is now admittingly reimbursing recruitment fees, also to contract workers. Moreover, these issues were previously identified at a nearby Supermax facility. The audit was made by Accordia in September 2019 as an Sedex-SMETA audit, but Accordia and Sedex declined to reply to The Diplomat’s questions. Supermax did not reply The Diplomat’s questions about the audit report. 

Audit reports shared with Reuters by glove maker Brightway concluded that “there is no forced, bonded or involuntary prison labor hired in this facility” even though they detailed dozens of violations of labor laws and global ethical standards, including recruitment fees up to $4,200 paid by workers to agents.

Hundreds, if not thousands, of flawed audits across industries globally are now detected and analysed by university scholars and civil society researchers. 

An exception to the norm, and a driver for change in the glove industry, was the extensive audit by Swedish public procurers in mid-2019, which was followed up in mid-2020.

Ethical Recruitment: Part of the Solution

Top Glove has said it was not aware of the exorbitant fees charged by its labor suppliers to migrant workers when the first big media stories on the issue were published in 2018. In 2019, Top Glove, Hartalega, Kossan, and others announced zero-cost recruitment policies under which they would bear all recruitment-related costs for future recruits, aligning with the Employer Pays principle, though not for the tens of thousands of current employees.

Ethical recruitment approaches gained further momentum after the U.S. ban on Top Glove. Following the ban in mid-2020, some of Malaysia’s major glove makers contracted renowned consultancies to monitor repayments and offer advice on recruitment. 

In spring 2021, the consultancy Impactt concluded that Top Glove is initiating a “new, transparent and rigorous” tender process for recruitment agency partners (besides terminating all current arrangements), increasing due diligence during the recruitment process, and incentivizing ethical recruitment among agencies. It highlighted the need to verify the implementation once recruitment resumes. 

Some industry experts with years of experience in Malaysia, speaking on condition of anonymity, consider the glove industry’s evolving ethical recruitment standards considerably more robust now compared to Malaysia’s other manufacturing industries, such as apparel and electronics. 

Other industry experts said that remedying workers for past fees is a necessary part of ethical recruitment, but not the solution, which must focus on prevention, i.e. monitoring the recruitment process to ensure that workers don’t pay in the first place.

Compared to Top Glove, most glove makers are less transparent about progress toward ethical recruitment and might be less progressive or willing to incur the extra costs. Speaking overall about the industry, critics say that proper monitoring of recruitment processes requires the involvement of truly independent third parties, which are not always welcome by foreign recruitment agencies. The resumption of foreign recruitment will be the litmus test, once COVID-19 lockdowns are lifted. 

“Foreigners coming to Malaysia for work are less vulnerable in coercive situations, if they didn’t become indebted for obtaining their job and a visa. However, it is important to pay attention to migrant workers’ multiple risks of falling into debt bondage or forced labor, so all aspects of their labor conditions must be assessed,” said the U.N. Special Rapporteur on contemporary forms of slavery, Tomoya Obokata.

Overlooked: Forced Labor Flying Under the Radar

By April 2021, Top Glove’s monitoring consultancy concluded that “indicators (of forced labor) are no longer present at Top Glove at a level to indicate systemic forced labor.” No bigger media investigations on Top Glove have aired since CBC News and BBC in early 2021, and Vice News in late 2020, to which Top Glove replied.

Top Glove continuously reports on its developments and worked with the U.S. government prior to the lifting of its import ban on September 10. None of the other glove makers match Top Glove in public reporting and transparency. 

As a result, problems persist elsewhere. Many mid-sized and smaller glove manufacturers fly under the radar, as bigger glove makers are attempting to weed out debt bondage risks. Attention is also lacking on the industry’s raw material suppliers, where fees and exploitation are endemic but rarely remedied, according to multiple industry sources.

Also unaddressed, at least publicly, is debt bondage for subcontracted workers, i.e. indirect employees working side-by-side with direct employees, even though the practice was made illegal in 2019. 

Many of Shalva’s colleagues at Supermax are subcontracted workers such as Gagan, who is formally employed by an agency. “I came to this factory around six years ago. I am paid via the agency, and I am fined via the agency,” he said. He sleeps in the same dormitory as the regular employees.

Like other subcontracted colleagues, Gagan paid recruitment fees equal to $1,300 in Nepal and a further $500 on arrival, totalling 5-7 months’ wages depending on overtime, he told me.

A Supermax spokesperson said that subcontracted workers would receive reimbursements in due course, and that the amount was included in the $5.5 million announced earlier for remediation. 

Weeding out debt bondage does not necessarily remove forced labor. Investigations revealed multiple ILO forced labor indicators at glove makers, not only debt bondage. A recent university survey of nearly 1,500 migrant workers found that forced labor risks were still high and had worsened during the pandemic. Meanwhile, the U.S. State Department downgraded Malaysia to the lowest rating in its 2021 Trafficking in Persons Report.

“The initial debt bondage focus resulted in knee-jerk responses by glove makers to reimburse workers recruitment fees, due to fear of sanctions,” said Archana Kotecha. “However, debt bondage issues rarely occur in isolation and are very often accompanied by a whole host of other issues such as poor living and working conditions, passport retention and restrictions on other freedoms.”

Taking Away Forced Labor Does Not Make Decent Work

When The Diplomat spoke to Shalva, Gagan, and others in July 2021, they were in a bad place. They had been confined for over a year, they said. Supermax confirmed that restrictions of movement was necessary due to the COVID-19 pandemic.

“We are constantly at risk of losing money to guards and goons,” Shalva said. “They fine us for everything.” Once he was up at night to get some air outside his dorm, when a guard fined him for being out of bed. 

Another interviewee said he was forced to take off his facemask, then photographed, then fined for not wearing the mask. Fines were given for number of unclear and, to them, unfair reasons. Shalva said he had paid over two months of wages in incomprehensible fines. Others had paid more. None dared to complain out of fear of further fines or beatings. 

“In August, I interviewed over 100 repatriated Supermax worker in Nepal. They told about a punitive management regime with penalties, fines, withheld wages, threats, and beatings, harassing them for years,” said Andy Hall. “Many have had fines totalling several months’ pay. Some had been threatened to only speak positively about the firm during audit interviews.”

A Supermax spokesperson said: “In this modern world, all workers have a handphone or two and could easily have reported us to their Embassies, the Police, and the authorities, hence it is inconceivable that such a big group of people who are so important to us can be intimidated to such an extent as to be cowering in fear. The very fact that they can report and speak to you and others freely, means they have the freedom to express to you their concerns.”

He continued: “It is commonplace for most workers to exaggerate and to over-complain on even the most minor of issues. Sometimes, it is better to understand that migrant workers can be dramatic without being reasonable and substantive in their comments and complain.”

Migrant workers got $100 million in repayments, but no respect or voice. Vulnerability and fear of speaking out are key forced labor risks. Many don’t speak the local language, aren’t organized, haven’t any support network or trusted contacts abroad, and are easy to deport if they disobey orders. All remember the manhunt a year ago, when wanted-poster style warnings were issued by Malaysia’s government about a Bangladeshi migrant who criticized the treatment of illegal immigrants in a TV documentary. His words were considered defamatory, so he was tracked down, arrested, and deported. 

“The exploitation experienced by many migrant workers is a noxious cocktail of dehumanization, disempowerment, and extreme workloads,” said Rosey Hurst of Impactt. “Society at large finds it easy to accept poor standards for migrants, who are seen as less than human. Workers themselves are ‘willing’ to accept poor treatment as the price for migration. Long hours and production pressure further coarsen the relationship enabling horrible practices to become normalized.”

Management and migrants are light years apart. Workers are as little involved or consulted as ever. For dialogue towards common ground to begin, the first step is to depoliticize the idea that dialogue hurts business. 

Moving On From Corporate Responsibility to Legal Accountability 

“Many companies prohibit forced labor in CSR policies, but it continues to flourish in global supply chains with no sanctions or consequences for companies,” said Obokata of the U.N.

What decades of voluntary CSR efforts by the global medical sector and the world’s biggest investors, as well as Malaysia’s own labor inspectorates, couldn’t handle was tackled head-on by the U.S. import ban. This led to positive and measurable impacts for tens of thousands of glove workers, at least in the short term, and triggered potential systemic change in recruitment practices. 

The import ban was effective because it hit the companies where it hurts: their revenue. Top Glove’s sales in North America declined by 68 percent in the third quarter of 2020 because of the U.S. ban, the firm said, although its half-yearly profit exceeded its total profit for the past 20 years due to the added demand of the pandemic.

Recent criticism of the import ban model focuses on its unclear and unpredictable procedures (e.g. why was only Top Glove banned?), the lack of transparency of the evidence burden for revoking bans (e.g. how much more did Top Glove need to reform or disclose?), and claims that U.S. importers of forced labor-made goods were not adequately engaged. 

The U.S. CBP has the authority to issue civil penalties against importers, even without first issuing import bans, but it has almost never done this. Such fines could contribute to worker remedies. “We recommend a Tariff Act Worker Emergency Fund, which could be partially or fully funded through penalties and would ensure workers are protected. This would augment and not replace the remediation required of global supply chain actors for forced labor,” Jennifer Rosenbaum, Director of GLJ-ILRF told a recent U.S. congressional hearing. 

Even though forced labor is illegal in many countries, it is perfectly legal to buy and sell goods domestically made by forced labor abroad. But momentum is increasing to make companies legally accountable for abuses at foreign suppliers.

The U.S. import ban model is now being taken up by other countries. In 2020, Canada banned goods made by forced labor from entering the country and is looking into forced labor allegations in Malaysia’s glove industry. In 2021, the Canadian Senate discussed adopting further legislation, and Australia’s Senate passed a bill banning imports made by forced labor.

In Europe, “The EU Commission seems reluctant to follow the U.S. import ban model, but (…) the EU has announced mandatory human rights due diligence legislation for companies,” said Heidi Hautala, vice president of the EU Parliament. The EU Commission has announced that such supply chain due diligence legislation will be introduced in 2021. 

Nationally, legislation requiring companies to prevent human rights abuses in crossborder supply chains is slowly being adopted. France was a front-runner in 2017. In 2021, Germany passed legislation that several German glove buyers are subject to when it comes into force. Also in 2021, a British amendment bill to the country’s toothless Modern Slavery Act, now including liability for violations, was tabled in parliament, and a Dutch bill was submitted in parliament.

The U.S. import ban model and the European due diligence model are all about defining violations, responsibilities, and remedies for damage done, but are vague about prevention: Who should monitor abuses? How to replace, or at least supplement, the flawed private audit paradigm? 

For now, it seems that the fragmented efforts by civil society organizations, including corporate watchdog groups, media investigations, and shoe-string activists, remain the only independent monitors and public awareness raisers. Their budgets are far below the millions of dollars pocketed by the audit industry, but sometimes it takes just one person to initiate change. The Malaysia glove case is a textbook case of just that.