Filling the Governance Gap: Multi-stakeholder Standard-Setting Trends in MSI Structures – Tiered Membership

February 23, 2016

Editor’s note: This post is part of an occasional series, “Filling the Governance Gap: Multi-stakeholder Standard-setting,” which examines the features of multi-stakeholder initiatives that set and enforce standards for human rights performance in different business sectors.

Multistakeholder Initiatives (MSIs) of private and public actors have emerged to fill governance gaps by creating binding and enforceable rules for groups of participating companies. One way to encourage broad membership across a range of industry participants in an MSI is to create a tiered membership structure. This can allow the MSI to accommodate differences in size and level of engagement of potential company members and help lower barriers to entry for small companies and those that derive only a portion of their revenue from the industry covered by the MSI. Risks of a tiered membership structure include unequal enforcement of the MSI’s human rights standard across tiers, and that companies in lower tiers derive similar reputational benefits as those in higher tiers because of a lack of differentiation in use of the MSI’s logo between tiers.

This post examines the tiered membership structures of two MSIs, the Fair Labor Association (FLA), and FairWear Foundation (FWF), both of which are discussed in greater detail in the Center’s forthcoming textbook, Business and Human Rights: From Principles to Practice, edited by Dorothée Baumann-Pauly and Justine Nolan.

I.                    Fair Labor Association

Companies can join the FLA in one of three ways:

FLA has the largest membership of the MSIs examined in this blog series—as of this writing, there are 44 Participating Companies, 18 Participating Suppliers, 70 Category B Licensees, thousands of licensees in Categories C and D, and hundreds more in Category E. Similar to the International Code of Conduct Association (ICOCA), FLA’s university members create a procurement incentive for companies to join – companies must join the FLA to have access to the collegiate market (in the ICOCA, security contractors must join the association in order to bid on participating government contracts). This expands the membership base of the FLA, while also generating participation from a large group of companies with diverse interests, business models, and perspectives on labor rights issues.

While all companies are required to implement the FLA code in their supply chains and in their headquarters operations, enforcement is quite variable across tiers. Only companies and suppliers in Category B and above pay fees to the FLA for supply chain monitoring in addition to their membership dues. As a result, staff resources and support are weighted toward Participating Companies, Participating Suppliers, and Category B licensees, with fewer resources devoted to ensuring code compliance among the very large number of lower-tier Collegiate Licensees. Category E brings in many small companies and artists that otherwise would not have the resources or leverage to engage in factory monitoring, but still commit to the FLA code.

As currently structured, there are few incentives for Category B licensees to graduate to Participating Company status and extend application of the FLA code to their full supply chains. This means that large companies like Under Armour can remain in Category B for long periods of time and only apply the FLA code to a subset of their supply chains, while publicly associating themselves with the FLA logo and brand. There is almost no practical differentiation among membership tiers in their use of the FLA logo, which allows Category E licensees that only submit a letter of commitment to enjoy similar reputational gains as all other companies that have much stricter requirements.

II.                  FairWear Foundation

In the FWF, there are three types of company memberships:

FWF recently eliminated a fourth tier for retailers, “Ambassador,” whose members were subject only to de minimus implementation requirements. Unlike the FLA’s licensee program, the incentive for Young Designers to join FWF is tied to the reputational benefits of membership and signaling a concern for sustainability in their supply chains, rather than a procurement benefit. But similarly to the FLA, the Young Designers tier has the effect of bringing in many small companies with limited resources for labor rights compliance and limited leverage in the factories where they source. These companies have different needs and incentives for labor rights compliance as compared to higher-tier members. It can be a challenge to address these unique needs without significant fees to underwrite FWF staff support and engagement.

III.                Recommendations

MSIs should consider the following factors in operating a tiered membership structure:


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