Watch CBSN Live

Microsoft's Chinese Labor Scandal: There's More Trouble Ahead for the Rest of High Tech

Back in February, I wondered if Apple (AAPL) might be the next Nike (NKE) because of labor problems reported at one of its big manufacturing contractors. At the time I mentioned that other high tech firms could find themselves in hot water because of what overseas factories did in their names. Two months later and it's happened, this time to Microsoft (MSFT). High tech companies need to wake up to a PR and ethical issue that's waiting to engulf them.

If accurate, the report by the National Labor Committee, which bills itself as a human rights advocacy group that focused on global labor abuse, is far more damning than the information that surfaced about Foxconn, which builds many products for Apple. (Apple also issued its own comprehensive report about a greater number of its suppliers.)

The list of alleged abuses at the contractor KYE -- which claims between 3,600 and 4,500 employees in China, depending on seasonal need -- is long and damning:

  • workers reporting working 68 hours a week despite being at the factory for 83 hours
  • 16- and 17-year-old students hired under the guise of work study who are put on the factory floor for 15 hours a day, six or seven days a week
  • workers are unable to use the bathroom during working hours
  • security guards that sexually harass women workers
  • forced living in "primitive and dirty dorm rooms," and workers must take sponge baths rather than showers
  • violation of all Chinese labor laws
If true, this all put the lie to the company slogan of "Integrity Is the Best Honor." Customers supposedly include Microsoft, HP (HPQ), Best Buy (BBY), Logitech (LOGI), and, ironically, Foxconn. Equally disturbing is the note that corporate codes of conduct "have zero impact" on KYE's operations.

I'm not going to argue whether this report is accurate or not. The fact that something like this might be accurate should send chills down corporate spines. Monitoring conditions in a foreign factory takes dedication and significant cost and effort. The only way to know what's really happening is to spend extensive time in a facility so management could not cover up conditions during a brief visit. A company that wants to be responsible clearly needs its own people in a facility to monitor on a continuing basis what actually happens.

But many industries, high tech clearly among them, have been happy with feelgood solutions: the annual visit and corporate labor standards for contract help. Apple's program goes much further than those of most companies, and the company still hasn't eliminated its problems. To avoid the embarrassment -- and potential government oversight, as the political climate becomes less tolerant of sending jobs overseas -- companies will have to move even more strongly. But you have to wonder whether the lure of cheap labor and the cold comfort of not knowing exactly what goes on in a factory won't continue to win out.

Image: The National Labor Committee