Statement regarding working conditions at supplier factories in El Salvador

Herzogenaurach, 1 October 2004 - In the face of ongoing allegations raised by Non-Governmental Organisations (NGOs) about substandard working conditions at the adidas supplier factories Chi Fung and Hermosa in El Salvador, we would like to clarify several points.
 
An integral part of our global corporate policy has been the development of company guidelines regarding acceptable social standards, work place safety, as well as health and environmental protection, and comprehensive monitoring of those guidelines in the production facilities of adidas-Salomon and its business partners. adidas-Salomon has a code of conduct, the Standards of Engagement (SOE) which establishes our global benchmark for working conditions in the supply chain. An expert team established especially for this purpose, monitors compliance performance against these standards in our contracted factories.
 
Within the framework of our global programme, we support the role of independent organisations in monitoring production facilities and welcome their constructive help in remediating non-compliance issues. We also support transparent reporting on workplace conditions, so we invite you to review the Fair Labor Association's website which includes a public report of the independent monitors' summary of workplace standards and compliance verification at Chi Fung.

Supplier status of Hermosa

Hermosa manufactured adidas apparel for the basketball and American football category but this factory has not produced any volume for adidas since mid-2002. There are no plans to place additional or future adidas production in this facility.

Supplier status of Chi Fung

Chi Fung manufactures adidas apparel for the North American market, mainly for the American Football and Basketball product categories. The order volume for these products is less than 10% of the factory's total production capacity. Production is ongoing.
 
Since March 1999, the factory Chi Fung has been visited regularly by members of our SEA factory monitoring team to ensure the execution of and compliance with the improvements agreed upon with the factory management. Dozens of employees have been interviewed and hundreds of employment documents reviewed. In May 2002, the Fair Labor Association conducted an independent audit of the factory. The findings did not indicate any serious non-compliance. We continuously monitor the implementation of the measurements agreed upon with the factory management. Factory management has been cooperative in completing compliance action plans. The last factory visit by our SOE experts was in July 2004, another one is planned for September 2004.

Allegation regarding insufficient drinking water hygiene

It has been alleged that the employees of Chi Fung were provided with drinking water that does not meet acceptable hygienic standards and that the drinking water was merely untreated tap water. However, there is clear evidence proving that the drinking water supplied is purified by a modern UV-filter system before distribution to the factory drinking stations. In addition, there are monthly potability tests by an independent laboratory, and workers are notified about the filtration procedure and potability test results.
 
adidas-Salomon has continuously promoted drinking water potability testing to ensure that the drinking water in the factory is as hygienically clean as the measurement reports confirmed to date. To that end, Chi Fung's independent filter service contractor is doing monthly potability tests. These tests (reviewed back to August 31st, 2002) are all negative for bacteria and coliforms. We have copies of these test reports until May 2004.
 
The El Salvadoreno Ministry of Health is doing unannounced monthly potability tests at Chi Fung, a program they will continue for the indefinite future. A review of the recent tests shows negative results for bacteria and coliforms.
 
adidas-Salomon has requested that the service contractor includes subsequent and monthly potability tests for contamination that might come from disinfection during the filtration process. The contamination measurement criteria to be used are parameters in the World Health Organization guidelines and listed by the US environmental protection agency.
 
Two capacity building activities have been undertaken. The factory's Health, Safety, Environmental committee is now trained and qualified to clean and maintain the filtration system, and this function has been included with the weekly, preventative maintenance checklist. New, large print signs with worker awareness notices have been posted at all drinking stations. The notice explains the three stages of filtration executed before the water is released for drinking, identifies the equipment maker, and other relevant data.
 
Despite the very best efforts of adidas-Salomon to ensure that clean drinking water is available for the workers, some stakeholders continue to question the results of these potability tests. Therefore, the adidas-Salomon Social and Environmental Affairs team, in collaboration with Chi Fung's factory management, has recently commissioned a local NGO to conduct an independent water potability evaluation of the factory's drinking water.
 
The project was confirmed mid July and includes a series of unannounced visits by the local NGO (Grupo Monitoreo Independiente El Salvador) to Chi Fung. They will draw water samples for testing and test them for contamination, observe the process of filtration and transportation of water from the filtration systems to the factory floor dispensers, and interview workers and management. These visits will be every 15 days, and continuing for at least 24 weeks.
 
This approach is in keeping with both our philosophy of transparency and our internal policy to identify any and all root causes of non-compliance. adidas-Salomon strongly believes that this verification project supports the investigations already conducted, and will clarify the allegations of impure drinking water at Chi Fung.

Allegation that workers take stimulant drugs (amphetamines) due to high work pressure

The adidas-Salomon Standards of Engagement (SOE) clearly state that "Employees must not be required, except in extraordinary circumstances, to work more than 60 hours per week including overtime or the local legal requirement, whichever is less. Employees must be allowed at least 24 consecutive hours rest within every 7 day period, and must receive paid annual leave."
 
We expect our business partners to adhere to the standards laid down in our SOE. Through internal and external audits we encourage our suppliers to continuously improve factory conditions. The use of stimulant drugs by Chi Fung workers has not been a finding in any of the internal audits or independent FLA audits at Chi Fung. The monitoring process in place at Chi Fung includes worker interviews by the adidas-Salomon SEA team and independent monitors, none of whom noted workers comments on the use of drugs in the workplace. While we will verify that stimulants are not being used by workers in Chi Fung, the complete lack of corroborating evidence makes this allegation unlikely.

Allegation regarding workers payment

Wages are essential for meeting the basic needs of employees and reasonable savings and discretionary expenditure. In all cases, wages must equal or exceed the minimum wage required by law or the prevailing industry wage, whichever is higher, and legally mandated benefits must be provided. Wages must be paid directly to the employee in cash or check or the equivalent. Information relating to wages must be provided to employees in a form they understand. Advances of, and deductions from wages must be carefully monitored and comply with law. In addition to compensation for regular working hours, employees must be compensated for overtime hours at the rate legally required in the country of manufacture or, in those countries where such laws do not exist, at a rate exceeding the regular hourly compensation rate.
 
The basic salary for workers employed by Chi Fung is 150 US-Dollar which is equivalent to the local minimum wage. The majority of workers, however, receive a higher wage due to bonus and incentive payments, plus overtime payments. The monitoring and controlling of correct payment through document checking and worker interviews is part of internal and external factory audits. There has never been an indication for incorrect overtime payment.
 
In order to pragmatically understand what a 'fair wage' means, we have conducted studies in several different countries investigating the basic needs requirements, and the saving and spending nature of the workers. The findings have been discussed with scientists, social interest groups, including Non-Governmental Organisations, and local unions.
 
Based on the findings we have defined a broad strategy which is addressed to our business partners. We ask them to establish a wage-setting mechanism that

• Is transparent and has direct input from the workers - i.e. ideally through negotiation or collective bargaining
• Acknowledges and rewards workers for productivity gains
• Meets in full all legally mandated benefits
• Benchmarks basic pay at a level that is higher than the local minimum wage
• Includes and takes into account data on general cost of living and workers' needs
• Is part of a broader and much improved human resource management system
• Where practical, promotes and supports the development of worker cooperatives.

Allegation regarding deliberate selection of interview partners by the factory management

It has been alleged as well that specific employees were selected and prepared by the factory management when adidas-Salomon employees or independent organisations conduct employee surveys. This accusation is incorrect and not tenable.
 
The monitoring guidelines which apply for our own as well as for the independent auditors clearly prescribe that interviewees have to be selected arbitrarily from amongst the factory employees and without any exertion of influence by the management. Interview locations are chosen to promote confidentiality and our auditors choose all interviewees. Management is prohibited from attending interviews with the auditors.

Allegation regarding Freedom of Association

According to the CCC, workers in the factory Chi Fung are not allowed to freely organise unions and they fear losing their jobs if they participate in elections for worker representation.
 
The right of workers to organise themselves and to present their views to management is one of the core principles of our 'Standards of Engagement', the Group's code of conduct. We believe that if a factory has an atmosphere that promotes freedom of association and collective bargaining, many labor issues will be resolved.
 
As a result of the many factory visits at Chi Fung, action plans specifically supporting compliance with freedom of association and collective bargaining are ongoing since 2002.
 
Chi Fung management and supervisors have participated in training sessions presented by independent experts and the SEA team. The June 2003 training included a review of El Salvadoran law, ILO conventions, and brands' codes of conduct regarding FOA. The session addressed "blacklisting" and other non-compliant practices and included a module explaining how to comply with the laws and codes of FOA and how to promote worker/management communication within the factory.
 
In September 2003, Freedom of Association training sessions for workers and management were presented by the US based NGO Verité. Benchmarking interviews with workers in the first quarter of 2004 have indicated the subsequent FOA awareness levels in the worker population, and are providing guidance for follow-up training in 2004. Industry level training by NGOs and multilaterals is being planned for the third quarter 2004. Independent verification activities supporting our FLA and corporate transparency obligations will measure the effectiveness of this training and guide subsequent capacity building exercises.

This labor-management activity supports ILO conventions recommending workers representatives and communications mechanisms with the condition that they do not hinder freedom of association or include activities recognised as functions of trade unions.
 
The general allegations that workers in the Chi Fung factory are restricted in their right of freedom of association and collective bargaining and that inadequate alternative forms of unionisation are proposed do not take into account actual conditions and are therefore misleading. They also ignore the ongoing remediation and competence building activities in this factory.
 
We will continue to engage in effective activities promoting worker-management awareness, compliance with the freedom to associate, and compliance verification.

The former Chi Fung and Hermosa employee Sonja Lara Campos

Ms. Sonja Lara Campos, an El Salvador national, has reported in the media and on several panel discussions about her experience as a former employee in the factories Chi Fung and Hermosa. We have traced back the employee records of Chi Fung and Hermosa for several years but did not find any indication of her employment under that name. Ms. Campos has not responded to our requests for additional information. Therefore it is difficult for us to verify if the allegations of Ms. Campos are relevant to Chi Fung and Hermosa. According to information provided by the Clean Clothes Campaign, Ms. Campos works for the National Labour Committee, a US based non governmental organisation.

We will continue to engage in effective activities promoting compliance verification and we remain committed to inform openly and transparently on the subject of working conditions at suppliers' factories.