Supply Chain

INTERNATIONAL LABOR STANDARDS IN LICENSING AND PRODUCT SOURCING

Disney created an International Labor Standards (ILS) program in 1996 to evaluate and address issues related to working conditions in facilities manufacturing Disney-branded merchandise. These facilities are not owned or controlled by Disney but are engaged by or associated with the vendors and licensees with whom we do business. The ILS program is based on our Code of Conduct for Manufacturers, which is designed to be consistent with the core conventions of the International Labour Organization (ILO).

Today our program has three main goals:

  • Foster safe, inclusive and respectful workplaces wherever Disney-branded products are made
  • Work cooperatively with governments, civil society organizations and other brands to make progress in addressing issues contributing to poor working conditions
  • Achieve greater visibility into our business relationships in order to mitigate risk for ourselves and others, proactively identify areas of concern and develop solutions, promote sustainable practices, and support value creation

Over the past 14 years, our ILS program has evolved to better address the changing demands of our business. The program has also adapted to reflect changing industry practice and thought on the application of labor standards. Like many companies that started similar programs in the 1990s, we initially focused on establishing a core set of critical standards, working with licensees, vendors and facilities to promote the implementation of these standards and assessing compliance. All of these actions provide us with insight into common labor problems at facilities around the world, as well as issues specific to particular countries and regions.

We confront challenges of implementing standards for the purpose of promoting continuous improvement in working conditions around the world that are not unique to Disney. These challenges have been well-documented through the years by independent experts, interested organizations and numerous companies that have adopted similar standards. Some of these challenges are outlined below.

  • The root causes of poor working conditions are complex.
  • Systemic national and global problems such as limited civic infrastructure, weak law enforcement, inadequate labor laws, lack of economic development and corruption make improvements in individual facilities difficult.
  • Consumer preferences for low cost products and company buying decisions related to price, quality and delivery can negatively impact working conditions.
  • Auditing and monitoring tools are subjective and may not be effective in driving continuous improvement.
  • Factories may be subject to conflicting standards, requirements and demands.
  • Many in the supply chain — licensees, vendors, workers, factory management — lack a sufficient understanding of labor standards and the value of compliance.

We have varying levels of influence to confront and impact these challenges. In addition, the characteristics of our supply chain, with its very large number of independent licensees, vendors and manufacturing facilities, present additional challenges.

The magnitude, complexity and pervasiveness of these challenges do not deter us from embracing our responsibility and working toward our goals. However, we have come to recognize there are limits to our ability to ensure consistent compliance and continuous improvement. We continue to seek such compliance and improvement by identifying ways to promote ongoing, steady and responsible working conditions through the refinement of traditional compliance approaches and the development of new methods. We also aim to identify and understand the root causes of the problem by working cooperatively whenever possible with external stakeholders and other brands, dedicating resources to activities that we believe may lead generally to improved conditions.

We have previously identified and discussed the key elements of our ILS approach. We continue to evaluate our focus and how to make each of these elements more effective. Some of the recent work and developments in this area are described below.

Integration within Our Business Operations

We have regular, ongoing dialogue within Disney about how to best integrate labor standards requirements into our business decision-making at an earlier stage. We are also developing and refining effective tools to achieve our program goals. Compliance with our Code of Conduct for Manufacturers has long been a standard requirement of our license and vendor agreements. We are making progress to move beyond compliance in the manufacturing process and to integrate labor standards considerations into initial sourcing and licensing decisions.

In 2010, our Theme Parks & Resorts Merchandise sourcing groups for Walt Disney World, Disneyland and Disneyland Paris started using an integrated vendor scorecard. The goal is to assess existing vendors on labor and environmental performance along with traditional sourcing metrics. The scorecard is then used in conversations with vendors on areas for improvement. Our aim over the next two years is to refine the assessment criteria, expand its use and establish a baseline that can be used to manage sourcing operations more effectively and track improvement.

We are also working with Social Accountability International to develop a system for evaluating licensees' knowledge and capabilities around labor standards. Our objective is to provide a management tool that allows us to identify and support those licensees that already have strong programs in place and to help build the capacity of licensees that have less mature programs. The system will aid in the assessment of licensee capabilities, the creation of a comparative scoring system and the education of licensees about the systems and policies required to manage an effective labor standards program. In 2010, we launched a pilot to test this system with more than 50 licensees.

In late 2009, Disney finalized the acquisition of Marvel Entertainment, Inc., with its more than 8,000 Marvel characters. Like Disney, Marvel is a licensor of characters and creative content on merchandise. Marvel is adopting Disney's ILS program and is requiring new and existing licensees to comply with Disney standards. Approximately 50% of Marvel's approximately 350 licensees were Disney licensees prior to the acquisition and were already familiar with Disney's ILS program requirements. Marvel is working closely with those licensees unfamiliar with the ILS program to convert their licenses and promote their compliance.

Education of Licensees and Vendors

The ILS group works closely with our business units, licensees, vendors, facilities, agents and social compliance monitors to communicate our program principles, policies and compliance expectations. We do this through seminars, presentations, meetings, formal training sessions and guidebooks. This year, we collaborated with industry colleagues to develop and disseminate a labor standards survey to better understand expectations of licensors and licensees. To learn more about this project, visit the feature story.

Monitoring of Facilities to Assess Working Conditions

The very large number of independent facilities engaged in the manufacture of Disney-branded product presents additional challenges when using traditional methods for monitoring for compliance and continuous improvement. In 2010, we reviewed approximately 4,700 audit reports covering facilities engaged in the manufacture of Disney-branded merchandise. This includes audits conducted by Disney employees, independent auditing organizations engaged by the Company and by licensees, vendors and buying agents. 

We continue to focus our auditing resources on facilities in countries that have been identified as highest risk for labor standards violations, using data and information obtained through Disney's years of experience with facility conditions in various countries. We supplement this information with external country data and reports such as the Transparency International Corruption Perceptions Index (CPI), the AccountAbility Responsible Competitiveness Index (RCI), Freedom House's Political Freedom Index and the United Nations Development Program Human Development Index (HDI). A review of this risk assessment is conducted annually.

Audit Coverage
The percentage of facilities which were audited in 2010 remains low due to the large number of facilities that manufacture Disney-branded merchandise. We continue to look at efficient and effective methods to increase the percentage of facilities that are audited each year, including engaging our licensees and vendors and our peer companies to obtain more information about facility working conditions. We have also joined the Supplier Ethical Data Exchange (SEDEX), an organization that allows members to share facility information, such as audits.


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Code of Conduct Violations
In our ongoing efforts to better evaluate and communicate conditions in our supply chain, this year we altered the previous method of reporting Code of Conduct categories. Our intent is to gather and disclose more specific information about the types of violations that are occurring. “Nondiscrimination” and “Association” were previously reported within "Coercion and Harassment." "Publication" was previously reported within "Monitoring and Compliance." These categories are reported for 2010 on a standalone basis.


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Remediation Activities that Encourage and Promote Sustainable Practices

Since launching our ILS program in 1996, we have conducted or received more than 70,000 facility assessments. This has provided us with a wealth of information about areas that need improvement. We have found that guidance around improvement expectations needs to be specific and actionable. This year we created an additional tool – Facility Improvement Guidelines – to provide greater clarity about specific areas for improvement in working conditions. This program is in the very early stages of training and testing. Like other ILS tools, we intend to continue to explore the potential effectiveness of this program in achieving our goals.

Collaboration with External Stakeholders

We participate in a number of networks across multiple industries and engage with a variety of stakeholders. This is a key component of our commitment to continuous improvement in labor conditions through implementation of our Code of Conduct.

GSCP
The Global Social Compliance Program (GSCP) is an industry initiative focused on creating greater collaboration and harmonization of corporate citizenship efforts around global supply chains. The program offers members a global platform for the exchange of knowledge and best practices. Our membership allows us to work with other major brands and retailers to create stronger, more consistent and less duplicative practices to monitor global supply chains.

SEDEX
SEDEX is a nonprofit membership organization that enables suppliers to authorize and upload information on their working conditions. SEDEX offers a globally accessible, secure and confidential data exchange platform, an audit method (SMETA), multi-lingual access for suppliers and customers, a self-assessment tool for manufacturers and working groups on key issues relating to labor standards. Our membership allows us to minimize duplication of facility audits and increase facility visibility.

Expectations for Cotton Sourced from Uzbekistan
We continue to monitor reports concerning the widespread, systematic use of forced child labor for the harvesting of cotton in Uzbekistan. We first raised this issue in April 2009 and we continue to remind our licensees and vendors that we expect them to avoid the use of Uzbek cotton. We have no knowledge to date of our licensees and vendors using Uzbek cotton; however, given the volume of Uzbek cotton in the world, we believe it prudent to restrict its use.

Through our membership in the Responsible Cotton Network, we are working to raise awareness of this very serious issue and to promote efforts for reform in Uzbekistan. The Responsible Cotton Network also includes other leading brands and retailers, industry associations, socially responsible investors, non-governmental organizations and other key stakeholders.

Government
We believe governments are critical participants in improving global working conditions. This year we participated in an effort supported by the United States Council for International Business to engage the private sector and the U.S. government, specifically the U.S. Department of State and the U.S. Department of Labor. The goal was to share information and find ways to collaborate more closely. This group will continue to explore effective information sharing and opportunities to work more closely on common objectives.

Transparency

We are committed to sharing information about our international labor standards program and about labor standards issues in general. This includes issues raised in public reports or brought to our attention by interested stakeholders. We also maintain a frequently asked questions page on our website to update stakeholders on relevant issues.

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