PREL CEO Says Wal-Mart’s Policy Is No Sweat

It’s hard to sneak up on factories in Fiji.

“If you do one, the others will know you’re there for sure,” said George Billingsley. “The only thing you can do is stay on top of it the best you can and go back and back again.”

Billingsley is chairman and CEO of Pacific Resources Export Ltd., a buying agent that inspects about 5,000 vendor factories each year for Bentonville-based Wal-Mart Stores Inc. The other 2,000 vendor factories that make goods for the world’s largest retailer are inspected by Wal-Mart or other agents such as Price Waterhouse.

Although it’s difficult to inspect all of its 7,000 vendor factories, Billingsley said, Wal-Mart works to see that conditions in those factories are humane.

“Wal-Mart is a company that’s trying,” he said concerning sweatshop accusations. “They’re a company that preaches integrity and lives integrity.”

Billingsley is hardly an unbiased observer, though. In 1989, Wal-Mart founder Sam Walton hired Billingsley, his tennis partner, to find factories for Wal-Mart overseas. Billingsley and a partner purchased PREL in 1991.

By spring 2002, however, “Wal-Mart will assume the responsibilities presently handled by PREL,” Billingsley said. He wouldn’t call it a “sale” and wouldn’t reveal how much money is involved in the transaction.

Whether Wal-Mart changes the way it does business overseas is yet to be seen. Billingsley said Wal-Mart told him, “The way PREL does it is not in our plan.”

Making the Cut

Billingsley refers to it as “certification” rather than “inspection.” Each year, about 150 factories receive a failing grade and are cut from Wal-Mart’s vendor list. Another 500 factories are dropped each year for other reasons, such as a lack of demand for their products.

The sweatshop issue made national news in May when KLD & Co., the largest mutual fund aimed at social responsibility, said it sold its shares of Wal-Mart and removed it from the Domini 400 Social Index because Wal-Mart wasn’t doing enough to prevent sweatshop abuses. The only other company to be booted from the DSI because of its vendors was Nike, the athletic shoe and apparel giant.

Then, on June 1 at a Wal-Mart shareholders meeting in Fayetteville, shareholders voted by a 91 percent margin against a proposal asking the company to come up with a stronger anti-sweatshop statement.

But 9 percent was considered a victory of sorts for the anti-sweatshop movement, and Wal-Mart plans to meet in China with three people from the group that made the proposal to tour factories there.

In its proxy statement and at the meeting, Wal-Mart told shareholders it already has an agent that monitors those factories — Pacific Resources Export Ltd.

Multiple Inspections

PREL inspects each of those 5,000 factories at least twice a year, although the company is paid by Wal-Mart for only one inspection per year, Billingsley said.

“Some factories you’re in four or five times during the course of a year because they have a production that needs to be inspected,” Billingsley said.

Another reason for the multiple inspections is to prevent Wal-Mart from getting the kind of negative publicity it received in 1996 when the National Labor Committee discovered that some of the retailer’s Kathie Lee Gifford apparel was made in a Honduran sweatshop. That factory, however, wasn’t one of PREL’s, Billingsley is quick to note. It was inspected by Price Waterhouse.

About half of the 5,000 factories PREL inspects for Wal-Mart are in China, with some 700 in the city of Shenzhen alone. With a population of 2.5 million, Shenzhen is a farming town turned business center in the Guangdong province just north of Hong Kong. Billingsley said it’s easier to conduct a surprise inspection in urban areas like Shenzhen because all 700 factories won’t be inspected during the same trip, and factory managers never know who will be next.

In addition to inspection, PREL also finds factories to produce goods and negotiates for them to become Wal-Mart vendors. So PREL, Wal-Mart’s exclusive buying agent for two-thirds of its vendor factories, is also the company that polices working conditions in those factories.

Pot Shots at No. 1

PREL dropped a factory in Shenzhen two years before a fire there killed 39 people. The PREL inspector had noticed that four of the exits were blocked. If the factory had still been a Wal-Mart vendor, Billingsley said, the story on the front page of the The New York Times would have read “39 dead at Wal-Mart factory in China.”

“When you’re No. 1, everybody’s shooting at you,” he said. “It’s so unjust what you’re accused of. In my view, it’s almost a futile thing to try to [defend against the accusations].”

With 29 offices and 700 employees, PREL is the largest buying agent in the world. PREL receives a percentage of the billions of dollars worth of goods that it helps Wal-Mart import each year.

Billingsley works for PREL from his office at International Tours in Bentonville, a travel agency he owns. Billingsley’s office walls are lined with pictures of himself and an often shirtless Sam Walton on the tennis court. Letters from Bill Clinton also decorate Billingsley’s office wall. A framed piece of brown paper sack is scrawled with a message from the former president reading, “Don’t lock the door. I’ll be right back.”

About 60 percent of the items commissioned by PREL are hard goods like small appliances. The rest are soft goods such as apparel and textiles. Major electronics manufacturers make their own deals with Wal-Mart.

“We’re the lowest-paid commissioned buying agent in the world,” Billingsley said. “But we’re shipping twice the volume of any other agent.”

Cultural Differences

In some countries, children work to help the family survive, Billingsley said. Children are even used as soldiers in some Third World countries.

In India, it’s as normal for a child to help her mother sew a rug as it is for a boy to help his father milk a cow on a farm in middle America, Billingsley said.

One reason for that, he said, is that an adult’s hand is too large to fit through the hole in some woven textiles made in India. But a child’s hand is small enough to reach in and pull the thread back through the opening.

Although it’s normal in India for children to weave fabrics, that might be considered abuse by American standards, especially if it’s done in a factory environment.

In some Third World countries, Billingsley said, unemployment and inflation are exceptionally high.

“It’s life’s blood for them,” Billingsley said. “To give them U.S. standards to live by isn’t fair. That’s the injustice in the thing.”

In addition to PREL, Wal-Mart has its own factory inspector, Denise Fenton, who Billingsley described as “tough as a boot.”

“I don’t care how tough the factory is in Yemen or Sudan, she’ll go there,” he said.

Billingsley said Fenton isn’t afraid to cut off Wal-Mart’s ties with factories who don’t adhere to its vendor standards.

Attempts to reach Fenton for a comment were unsuccessful.

Social Concerns

With more than 1 million employees, 4,000 stores and sales of $191 billion, Wal-Mart is in a position to set an example, but it hasn’t, said KLD & Co. of Boston, which controls the $1.4 billion Domini Social Equity Fund and corresponding Domini 400 Social Index.

In a report issued in May, KLD cited two high-profile controversies involving Wal-Mart and sweatshops over the past decade: the Kathie Lee Gifford sweatshop discovery and a 1992 NBC television report that said some of Wal-Mart’s clothing had been made by children in Bangladesh, despite being advertised as being “Made in the U.S.A.”

But KLD said the February action was based on three more recent events:

• The National Labor Committee reported in July 2000 that Wal-Mart Canada had purchased goods made in the military dictatorship of Myanmar, formerly known as Burma, at least through December 1999.

• BusinessWeek magazine reported in October 2000 that Wal-Mart lied about its involvement with the Chun Si Enterprise Handbag Factory, a sweatshop based in China that allegedly subjected its workers to 90-hour work-weeks, beatings by factory guards, exceptionally low-wages and prison-like conditions.

• And Wal-Mart decided against using a third-party independent monitoring program at its vendors’ facilities in Central America.

Billingsley said he doesn’t believe Chun Si was one of the factories contracted or inspected by PREL.

“I don’t recall that,” he said of Chun Si.

Wal-Mart’s statement concerning sweatshop issues says the company pays the prevailing wage in the country where the factory is located. Wal-Mart also said it doesn’t do business with any factories where human rights abuses are known to take place.

The General Board of Pension and Health Benefits of The United Methodist Church asked Wal-Mart’s Board of Directors to prepare a document stating that the company won’t purchase goods from suppliers who “manufacture items using forced labor, convict labor or child labor, or who fail to comply with fundamental workplace rights …”

Wal-Mart asked shareholders to vote against the proposal, and they did, by a 91 percent margin. The 9 percent of shareholders who voted for the proposal was over a 3 percent cap set by the Securities and Exchange Commission. That means the proposal can be brought up for a vote again at next year’s shareholders meeting.

The Methodist Church board, as part of the Interfaith Center on Corporate Responsibility, made a similar request to Wal-Mart in January. The center is a human rights coalition of 275 Protestant, Catholic and Jewish institutional investors in North America with a combined portfolio of about $100 billion. The center invests more than $12 billion on behalf of 6,700 participants, said Vidette Bullock Mixon, director of corporate relations and social concerns for the church’s pension and health-benefits board.

Mixon said she and two other representatives from the organization plan to travel to China in July to meet with Wal-Mart representatives and look at factory conditions there. When asked if Wal-Mart would pay for the trip, she said, “We haven’t worked out all of the details. We have been invited. We are planning to visit several factories that source products.”

Mixon said Wal-Mart has been “responsive to our concerns,” and the company is updating its internal auditing process.

“Their heart’s in the right place, but they’ve got bad information,” Billingsley said of the shareholders who brought up the sweatshop proposal.