i NEED THIS PAPER. ANY ONE WHO CAN GIVE IN 6 HRS ORIGINAL WORK

Mattel, Inc.: Global Manufacturing

Principles (GMP) – A Life-Cycle Analysis

of a Company-Based Code of Conduct

in the Toy Industry

S. Prakash Sethi Emre A. Veral

H. Jack Shapiro Olga Emelianova

ABSTRACT. Over the last 20+ years, multinational

corporations (MNCs) have been confronted with accu-

sations of abuse of market power and unfair and unethical

business conduct especially as it relates to their overseas

operations and supply chain management. These accusa-

tions include, among others, worker exploitation in terms

of unfairly low wages, excessive work hours, and unsafe

work environment; pollution and contamination of air,

ground water and land resources; and, undermining the

ability of natural government to protect the well-being of

their citizens. MNCs have responded to these accusations

by creating voluntary codes of conduct which commit

them to specific standards for addressing these issues.

These codes are created at both the industry-wide and the

individual company level. Unfortunately, these codes

have generated little credibility and public trust because

their compliance claims cannot be independently verified,

and they lack transparency and full public disclosure. In

this article, we present a case study of the voluntary code

of conduct by Mattel, Inc., the world’s largest toy com-

pany. The code, called the Global Manufacturing Prin-

ciples (GMP), confronts the general criticism leveled

against voluntary codes of conduct by (a) creating detailed

standards of compliance, (b) independent external mon-

itoring of the company’s compliance with its code of

conduct, and (c) making full, and uncensored public

disclosure of the audit findings and company’s response in

terms of remedial action. We present a detailed account of

how Mattel’s voluntary code of conduct was created,

implemented, and ultimately abandoned over 9 years. We

provide an evaluative analysis of the company’s GMP

compliance throughout its life span, which suggests a bell-

shaped curve, where early top management commitments

were met with pockets of resistance from operational

groups, who were concerned about balancing GMP

compliance efforts with traditional performance criteria.

The early stage response from Mattel’s top management

was quick and supported with the requisite resources. As a

result, the compliance process accelerated, becoming

increasingly more robust and effective. The success of

code compliance and increased transparency in public

disclosure energized field managers with a sense of pro-

fessional satisfaction and publicly recognized accom-

plishments. The decline in GMP compliance was equally

steep. When all the easily attainable targets had been

reached at the company-operated plants, addressing

vendor plants’ compliance presented a new set of chal-

lenges, which taxed corporate resources and management

commitment. It would seem that value-based and ethics-

oriented considerations, i.e., doing the right thing for the

right reason, were no longer the driving force for Mattel’s

management. Mattel did not see any economic benefit

from its proactive stance, when competitors did not seem

to suffer adverse consequences for not following suit. The

final contributing factor to the code’s abandonment was a

widely publicized series of product recalls which absorbed

top management’s attention.

KEY WORDS: voluntary codes of conduct, sweatshops,

outsourcing, supply chain management, corporate account-

ability, third party audits, Mattel, Inc., toy Industry, man-

ufacturing in China, Malaysia, Thailand, and Indonesia,

corporate culture, top management and management

incentives

Introduction

In November 1997, Mattel announced the creation

of a global code of conduct for its production

facilities and contract manufacturers. Called the

Global Manufacturing Principles (GMP), the code

covered such issues as wages and hours, child labor,

Journal of Business Ethics (2011) 99:483–517 � Springer 2010 DOI 10.1007/s10551-010-0673-0

forced labor, discrimination, freedom of association,

legal and ethical business practices, product safety

and product quality, protection of the environment,

and respect for local cultures, values, and traditions.

At the time of the GMP announcement, Mattel

was the world’s largest producer of toys in the world.

With $4.5 billion in annual revenue, the company

was the worldwide leader in design, manufacture,

and marketing of children’s toys. Headquartered in

El Segundo, California, Mattel has offices in 36

countries and markets its products in more than 150

nations around the world.

This case study offers a detailed account of how a

company’s voluntary code of conduct was created,

implemented, and ultimately abandoned over a per-

iod of approximately 9 years. 1 It started out as a highly

innovative response to societal concerns and chal-

lenged the toy industry’s routine pledges of code

compliance, which were rarely, if ever, indepen-

dently verified and publicly reported. Moreover, this

situation was not confined to the toy industry, but was

endemic to other industries where large multinational

corporations (MNCs) were establishing long sup-

ply chains and outsourcing operations in the emerg-

ing economies to take advantage of cheap labor

and lax enforcement of health and safety condi-

tions, pollution and other environmental protection

standards.

In one sense, Mattel’s code was not significantly

different than a host of other codes of conduct that

were sponsored by individual companies and industry

groups from advanced countries with large manu-

facturing and procurement operations in low-wage

countries with abundant supply of young workers. In

large part, these codes appeared to have been created

to assuage public opinion that these businesses were

not exploiting workers by forcing them to work

under sweatshop-like conditions. There was, how-

ever, little effort to implement these codes or show

demonstrable improvement in the alleged abuses.

Mattel, however, took a major step to move beyond

the ‘‘me too’’ type of code of conduct. Mattel’s GMP

was quite different in one important aspect, i.e.,

Mattel committed itself, its strategic partners and

primary suppliers, to comply with all the provisions of

the GMP.

The second aspect of this case study is an evalu-

ative analysis of both the achievements and shortfalls

in the company’s code compliance during its short

life of 9 years. The life cycle of the code, from its

inception to abandonment, suggests a bell-shaped

curve. While early efforts were taken with consid-

erable commitment on the part of top management,

but with significant pockets of resistance from

operational groups who were concerned about their

own performance on GMP compliance, and how it

would be balanced with their performance on con-

ventional business criteria of cost efficiencies and

profitability.

A detailed analysis of the monitoring activities over

the entire period of code compliance under study

would indicate that field managers responded to

GMP compliance standards in terms of direct and

indirect signals they received from the top manage-

ment. In the initial phase of compliance, activities

were slow and deliberate since most actions were new

and ad hoc. However, once the policies and proce-

dures were established, they resulted in a steep

learning curve. The initial phase also had strong

oversight interest from top management including a

representative of Mattel’s board of directors, and

called for frequent reporting. The response from top

management was also quick and was supported with

additional physical and human resources. The process

accelerated and became more robust and effective.

The success of code compliance and increased trans-

parency in public disclosure energized field managers

with a sense of professional satisfaction as they noted

market recognition of their efforts, increase in public

trust, and enhanced corporate reputation.

Unfortunately, the decline in the company’s

commitment to code compliance and transparency

was equally steep. By the middle of the code’s life

cycle, it became apparent that all the easily attainable

goals had been attained and further progress would

be incremental and accommodated in normal busi-

ness operations. Moreover, some of the initial stage

expenditures that were designed to bring the com-

pany-owned and controlled plants to GMP standards

had resulted in significant overall improvement in

code compliance. The next phase, starting at the

peak of the code life cycle of the bell-shaped curve

presented a new set of challenges. It would require

additional resources and top management commit-

ment to bring vendor plants to improve their

compliance efforts.

484 S. Prakash Sethi et al.

From our perspective, two other factors had a

strong bearing on Mattel’s decision to discard public

disclosure of its code compliance activities.

1. The company’s top management did not see

any economic benefit from its proactive re-

sponse to code compliance when other com-

panies in the industry did not seem to suffer

adverse consequences for not pursuing a ro-

bust and transparent form of code compli-

ance. Thus, the company had to justify its

GMP-related actions as ‘‘the right thing to

do,’’ a position that required a sustained level

of value-based ethical commitment.

2. Mattel’s top management was distracted with

other issues pertaining to its manufacturing

and marketing activities, which had strong

and potentially negative impact on corporate

reputation. Mattel was engulfed in a product

recall of 17.4 million toys because of loose

magnets that could be swallowed by children.

The company also recalled another 2.2 mil-

lion toys because of impermissible levels of

lead in the toys. It was the biggest recall in the

company’s history. As if all this adverse pub-

licity was not enough, one of Mattel’s senior

executives made a widely publicized public

apology to Chinese authorities for inadver-

tently blaming China’s weak regulation of that

country’s toy factories (Press Trust of India,

2007; Story, 2007; Story and Barboza, 2007).

Antecedents to the creation of Global Manufacturing

Principles

Public concerns about worker exploitation and

environmental degradation arose with the expansion

of outsourcing and production in emerging econo-

mies where poverty, abundant labor, and need for

job creation provided unprecedented opportunities

for large MNCs to shift production from high-wage

countries to low-wage countries.

Starting with isolated complaints from civil soci-

ety organizations, human rights groups, and orga-

nized labor in the mid-eighties, the anti-sweatshop

movement became a major force by early nineties in

the United States, Canada, Europe, and other

industrially advanced countries. Global companies

were under fire for operating factories with working

conditions that violated basic human rights and labor

laws in terms of wages and working conditions.

Instances of worker exploitation and employment of

underage workers were widespread.

For example, in the South Pacific Island of Saipan,

the first assault was on companies that were character-

ized as labor intensive and required relatively simple and

mature technologies requiring relatively smaller capital

outlays. However, the protest movement soon engulfed

high technology industries, where environmental con-

tamination was a primary concern. Levi Strauss and Co.

was accused of practicing ‘‘slave labor’’ (Schoenberger,

2000). In Indonesia, Nike was being derided for its poor

treatment of workers. Asian American Free Labor

Institute-Indonesia (AAFLI) was appointed by the U.S.

Agency for International Development (USAID) to

conduct a study related to worker treatment in East and

Southeast Asia. The study found that Nike paid the

lowest wages to its factory workers. This led to inter-

national campaigns against sweatshop conditions in

Nike factories (NBOER, 2004). Levi established a code

of conduct in 1991 after being reproached by media

scandals (Levi Strauss & Co.). This was followed by

Nike, which also established a voluntary code of con-

duct in 1992. Similar concerns were expressed against

other companies and became objects of public repro-

bation. Another group discovered that Kathy Lee Gif-

ford, a talk-show host and a celebrity, owned a clothing

line made in sweatshops. Big names in the apparel

industry like Wal-Mart, Kmart, Gap, and others were

implicated in profiting from sweatshop-like manufac-

turing operations. Given the highly recognizable nature

of these brands, International Labor and Human Rights

Organizations launched a campaign against these and

other companies. President Clinton formed the White

House Apparel Industry Partnership in August 1996 to

end sweatshops (United States Department of Labor,

1997). Organizations like National Labor Committee

(NLC), Fair Labor Association (FLA), United Students

Against Sweatshops (USAS), and Campaign for Labor

Rights (CLR) were highly involved in castigating labor

abuses (La Botz, 2007).

Crisis at Mattel

In line with apparel and footwear industries, the toy

industry had also taken steps to respond to public

concerns with regard to sweatshop-like conditions and

485Global Manufacturing Principles

worker exploitation in toy manufacturing factories in

China and other developing countries. These efforts

were quite similar to those of other industries in that

codes of conduct were created with tremendous fan-

fare but with insufficient effort to improve and monitor

actual working conditions in those factories.

The crisis at Mattel occurred in December 17, 1996

(Barboza and Story, 1997; NYT, 1997). The company

was caught off-guard by an investigative report aired by

NBC’s news program Dateline on December 17,

1996. An Indonesian factory that manufactured toys

for Mattel was found to have employed underage

workers who were also working long hours and doing

excessive overtime. Although Mattel disputed some of

the findings of the investigative report, it also realized

that it must provide a more meaningful response in

terms of corrective action.

Companies are more likely to respond forcefully,

and even take radical action, when they are con-

fronted with an external crisis, which has the potential

of adversely impacting their core business operations

and a diminution of the corporate reputation. In that

sense, Mattel was no exception. The result was the

creation of Mattel’s GMP (See Exhibit 1).

Exhibit 1

Global Manufacturing Principles, Mattel, Inc., 1997

These manufacturing principles sets standards for every

facility manufacturing our products in every location in

which they are produced. Compromise is not an option.

Wages and hours: All Mattel factories and vendors must set

working hours, wages, and overtime pay that are in

compliance with governing laws. Workers must be paid

at least the minimum legal wage or a wage that meets

local industry standards, whichever is greater.

While overtime is often necessary, in consumer product

production, Mattel factories and vendors must operate in a

manner that limits overtime to a level that ensures humane,

safe, and productive working conditions. Overtime, if

necessary must be paid in accordance with local laws.

Child labor: No one under the age of 16 or under the legal

age limit (whichever is higher) may be allowed to work in a

facility that produces products for Mattel. Simply stated,

Mattel creates products for children around the world – not

jobs.

We encourage the creation of apprenticeship programs

tied to formal education for young people as long as

students will in no way be exploited or placed in

situations that endanger their health or safety.

Exhibit 1 continued

Forced labor: Under no circumstances will Mattel, Inc., use

forced or prison labor of any kind nor will we work with

any manufacturer or supplier who does.

Discrimination: Discrimination of any kind is not tolerated

by Mattel, Inc. It is our belief that individuals should be

employed on the basis of their ability to do a job – not on

the basis of individual characteristics or beliefs.

We refuse to conduct business with any manufacturer or

supplier who discriminates either in hiring or in

employment practices.

Freedom of association: Mattel is committed to abiding by all

the laws and regulations of every country in which we

operate. We recognize all employees’ rights to choose

(or not) to affiliate with legally sanctioned organizations

or associations without unlawful interference.

Working conditions: All Mattel, Inc., facilities and those of

its business partners must provide a safe working

environment for their employees. Facilities must engage

in efforts including:

n Complying with or exceeding all applicable local laws

regarding sanitization and risk protection and meeting or

exceeding Mattel’s own stringent standards.

n Maintaining proper lighting or ventilation.

n Keeping aisles and exits accessible at

all times.

n Properly maintaining and servicing all

machinery.

n Sensibly storing and responsibly disposing of hazardous

materials.

n Having an appropriate emergency medical and evac-

uation response plan for its employees.

n Never using corporal punishment or any other form of

physical or psychological coercion on any employee.

Facilities that provide housing to their employees as a

benefit of employment must ensure that housing be kept

clean and safe.

Legal and ethical business practices: Mattel will favor business

partners who are committed to ethical standards that are

compatible with our own. At a minimum, all Mattel

business partners must comply with the local and national

laws of the countries in which they operate.

In addition, all of our business partners must respect the

significance of all patents, trademarks, copyrights of our

and others’ products and support us in the protection of

these valuable assets.

Product safety and product quality: All Mattel, Inc., business

partners must share our commitment to product safety

and quality and must adhere to those operational and

workplace practices that are necessary to meet our strin-

gent safety and quality standards.

486 S. Prakash Sethi et al.

In the case of Mattel, two distinguishing elements

influenced its design of the new code of conduct.

The company’s products were aimed at children and

the company emphasized children and family values.

Therefore, it could not be seen to be undermining

these values by employing children and underage

workers to make toys under sweatshop conditions.

The company also had a strong CEO who favored

entrepreneurial approaches to business strategy and

operations. Mattel’s board included a number of

directors who were imbued with the ethics of cor-

porate social responsibility and were supportive of

GMP. Finally, the company’s employees generally

took pride in being part of the company.

Putting thoughts into action

Establishment of Mattel Independent Monitoring Council

Mattel’s GMP called for the creation of an inde-

pendently and externally based monitoring system

that would verify Mattel’s compliance with its code

of conduct in a manner that would be credible to the

public and engender trust in Mattel’s GMP-related

performance claims. The exploratory process within

Mattel led the company to identify Prof. S. Prakash

Sethi as someone who could help the company in

creating a credible process of code implementation

that would be trusted by the public. Sethi had long

been identified as a strong advocate of voluntary

codes of conduct, provided they could be imple-

mented in an effective and transparent manner, and

where companies could be held accountable for

compliance (Sethi, 2003).

Mr. Sean Fitzgerald, Mattel’s Vice President of

External Communications initiated contact between

Sethi and Mattel. In an interview with the New

York Times, Sethi recalled ‘‘They asked me if I

could work with them, and I said, ‘What do you

mean, work with you?’ They said, ‘We have a

problem: we want to make sure that we are doing

the right thing, and that the public believes we are

doing the right thing (Dee, 2007).’’

After some serious soul searching, Sethi conveyed

his willingness to work with Mattel. The company

would commit itself to three initiatives in imple-

menting the code.

1. The GMP-related compliance efforts by Mat-

tel, its strategic partners, and primary suppliers

would be audited by an independent outside

group of respected and knowledgeable experts.

This group would have complete access to all

Exhibit 1 conitnued

Environment: Mattel, Inc., will only work with those

manufacturers or suppliers who comply with all applicable

laws and regulations and share our commitment to the

environment.

Customs: Because of the global nature of our businesses

and our history of leadership in this area, Mattel, Inc.,

insists that all of our business partners maintain a strict

adherence to all local and international custom laws. Our

business partners must comply with all import and export

regulations.

Evaluation and monitoring: Mattel, Inc., is committed to

ensuring that all facilities manufacturing our products

meet or exceed our GMP and we will audit all facilities to

ensure compliance. Consistently, we insist that all man-

ufacturing facilities provide us with:

n Full access for on-site inspections by Mattel or parties

designated by Mattel.

n Full access to those records that will enable us to

determine compliance with our principles.

n An annual statement of compliance to our GMP signed

by an officer of the manufacturer or the manufacturing

facility.

Acceptance of and compliance to the Mattel GMP is part

of every contract agreement signed with all of our man-

ufacturing business partners.

Compliance: These principles are intended to create and

encourage responsible manufacturing business practices

around the world – not serve as a guideline for punish-

ment.

We expect all of our manufacturing business partners to

meet these principles on an ongoing basis. At the same

time, our current business partners can expect us to work

with them to effect change if certain aspects of the

principles are not being met. Future business partners will

not be engaged unless they meet all of our manufacturing

principles.

If Mattel determines that any of its manufacturing facilities

or any vendor has violated these principles, we may either

terminate our business relationship or require the facility

to implement a corrective action plan. If corrective action

is advised but not taken, Mattel will immediately termi-

nate current production and suspend placement of future

orders.

487Global Manufacturing Principles

the facilities, workers, and supervisors, and

payroll and financial records pertaining to

the plants owned and operated by Mattel, its

strategic partners, and primary suppliers.

2. The external monitoring group would have

complete discretion in making its findings

public, both as to their content and fre-

quency.

3. GMP audits would not be a one-time phe-

nomenon. Instead, they would be under-

taken on a regular basis as an integral part of

the company’s operational philosophy.

Sean Fitzgerald was sold on what he called ‘‘the

concept of Prakash.’’ According to Fitzgerald,

‘‘You’ve got to have a strong sense of self in order to

be successful in an endeavor like that. And Prakash

has got that going on.’’ Mr. Fitzgerald briefed

Mattel’s executives at the corporate headquarters in

El Segundo, California on his discussions with Prof.

Sethi and received their concurrence to proceed

with the project (Dee, 2007).

Prof. Sethi was invited to visit Mattel’s head-

quarters and to meet with top management. The

resultant discussions led to the establishment of the

Mattel Independent Monitoring Council (MIM-

CO), the precursor to the International Center for

Corporate Accountability (ICCA). The council

comprised three members with Prof. S. Prakash

Sethi as its chairperson, and the other two members

were Prof. L. Murray Weidenbaum and Rev. Dr.

Paul F. McCleary.

In a press release following the creation of

MIMCO, Mattel also commented on the positive

aspects of the monitoring process. Jill Barad, Mattel’s

CEO stated, ‘‘Mattel is committed to improving the

skill level of the workers in our facilities so that they,

in turn, will experience increased opportunities and

productivity.’’ According to Joseph Gandolfo, then

President of Mattel’s Worldwide Manufacturing

Operations, ‘‘These principles are intended to create

and encourage responsible manufacturing business

practices around the world – not serve as a guideline

for punishment. However, manufacturers that do

not meet our standards, or refuse to take swift,

corrective action to do so, will no longer work for

Mattel (PR Newswire, 1997).’’

As part of its overall strategy of code compliance,

Mattel’s top management also undertook to:

(a) make compliance with the GMP an integral

part of management evaluation and compen-

sation;

(b) develop training procedures and information

systems by which all levels of the company’s

managers and employees would be familiar-

ized with these instructions and implemen-

tation procedures;

(c) constantly revise and improve these instruc-

tions and operational procedures in light of

experience gained from its own operations

and those of other companies facing similar

operational challenges in countries where

Mattel has its operations, and,

(d) verify that all of the company’s operations,

and those of its major suppliers and strategic

partners, remain in full compliance at all

times with the GMP and the Company’s

implementation procedures and instructions.

Putting principles into practice

Transforming a two-page document, which con-

sisted of broad ethical declarations into detailed

operational standards that would not only specify

process, but even more importantly, require mea-

surable outcomes, was quite complex and an enor-

mous learning experience. According to Sethi, ‘‘It

was totally unprecedented. Really intoxicating, I was

inventing everything as I went along. There just

were not any systems of its kind. Nobody could say,

‘It can’t be done’ (Dee, 2007).’’

The process required that the company engage its

various operational divisions, which would be im-

pacted with costs and benefits from complying with

the code. Similarly, there were considerable differ-

ences of opinion among the senior managers in the

corporate headquarters and those in the field as to

the potential benefits and risks of breaking the pre-

vailing industry mold, and whether in the end, the

company would even gain anything by way of

public trust in the implementation of this program.

Mattel set up two task forces, one in El Segundo

and the other one in Hong Kong, to work with

Sethi’s group to create operational standards. The

two task forces comprised more than 50 managers

and technical experts. This group, along with

488 S. Prakash Sethi et al.

MIMCO, worked extensively over a 12-month

period to create detailed operational standards and

performance measures, and to secure agreement

with Mattel’s top management and field managers, as

to those standards.

The newly devised standards had to meet four

criteria:

1. The standards must be quantifiable and objective

in measuring and evaluating performance. In

other words, two different people observing

compliance with a given criterion must draw

similar conclusions.

2. They must be outcome-oriented. It is not enough

to indicate that moneys are being spent or that

policies and procedures exist. Rather, the

plant management is required to show that

there are so many bathrooms per 100 workers,

so many square feet of living space per worker

in a dormitory, and that the injury rate per

1000 worker-hours meets industry standards.

3. At a minimum, these standards must meet the

legal criteria mandated by the labor and environ-

mental laws of the country where a plant is lo-

cated. Where country-specific standards do

not exist, or are lower than Mattel standards,

local plants must meet Mattel’s own stan-

dards. As a long-term proposition, Mattel

must endeavor to have its plants meet or ex-

ceed the best industry practices prevailing in

their specific regions or localities.

4. The standard-setting process is dynamic and inter-

active. Standards of performance must con-

tinue to evolve in light of experience gained

from existing operations, competitor con-

duct, and the company’s desire to continue

building on its leadership position. In addition,

standards must evolve to meet changing societal

expectations because of new data and conduct

of major players in the industry, NGO com-

munity, public opinion, and behavior of host

country governments.

The end product was the creation of an audit

protocol, including a detailed 75-page checklist for

quantifying conditions inside every one of Mattel’s

factories and vendor plants.

Are eyewash stations and safety showers installed in

areas of corrosive material use (e.g., battery servicing

areas, cooling towers, storage of corrosive material,

electroplating) and in high-volume solvent usage areas

(e.g., paint mixing, chemical storage and dispensing,

solvent distillation)?

By all accounts, both Mattel and Sethi’s group fought

energetically for their positions. But in the end, in

return for the promise of restored public trust, Mattel

was willing to let Sethi be Sethi. It would be wrong to

say he is abrasive – on the contrary, he is chatty and

hospitable in person – but he is most certainly unafraid

to be abrasive when the situation calls for it. He has no

interest in ingratiating himself with those in power.

Jim Walter, senior vice president for global product

integrity at Mattel, who has been in constant contact

with Sethi and his staff for the past seven years, calls

him ‘‘an appropriately positioned thorn in our side

(Dee, 2007).’’

This process led to the development of more than

200 specific standards. They define the compliance

parameters for each principle and cover all aspects of

manufacturing operations; environment health and

safety standards; worker hiring and training; working

conditions; working hours, performance bonuses,

wages, and overtime; conditions in dormitories and

recreational facilities; and non-job-related skill-

enhancement programs. The China document alone

is 60 pages long. Similar compliance documents

were prepared for 20 other countries where Mattel

had operations. These documents are continuously

revised in light of changes in local labor and envi-

ronmental laws.

Changes in Mattel’s top management

No sooner had the field audit process gotten

underway, Mattel was rocked by a major financial

crisis that led to a wholesale change in the company’s

top management. Early in 1999, Mattel’s CEO, Ms.

Jill Elikann Barad, made an ill-timed acquisition of

the Learning Company, a maker of educational

software for US $3.8 billion (Miller, 2000). It was a

controversial acquisition both for its price and po-

tential fit with Mattel’s existing business model.

Soon the acquisition turned out to be a financial

disaster, risking the future of the company as a going

concern. Mattel was losing about a million dollars in

cash daily. Mattel’s CEO was forced to resign and in

an effort to turn the company around, Mattel’s board

489Global Manufacturing Principles

of directors brought in a new CEO, Mr. Robert

A. Eckert, then the president of Kraft Foods.

The new CEO faced major challenges in restoring

the company’s financial health and could easily have

relegated the GMP to lower priority. Eckert, how-

ever, chose a different course. In his first meeting

with MIMCO and his senior managers, Eckert de-

clared, ‘‘I am a libertarian by conviction. I also be-

lieve that the corporation’s freedom to manage its

operations cannot be sustained without our assuming

our social responsibility to the community (Sethi,

2003).’’ He indicated that Mattel would behave in all

its actions with ‘‘unwavering integrity’’ 2

and that the

company’s commitment to the GMP remained

unequivocal and undiminished. In an interview with

New York Times, Eckert admitted that it would

have been tempting to eliminate the program as a

cost cutting measure when none of Mattel’s com-

petitors even bothered with it. ‘‘We had a pretty

frank discussion about it,’’ Eckert admits, but in the

end he chose to keep it going. ‘‘We want to be

contributing to the development of these societies,’’

he told me, ‘‘not merely taking advantage of the fact

that they’re not as developed as we are’’ (Dee, 2007).

Modification of GMP – explicit and implicit exclusions

The new top management team re-focused the

company’s attention to its core business operations

including better oversight and control of its global

supply chain. Among the changes, the company issued

four policy initiatives to enhance internal GMP

compliance. These included a revised GMP (Exhibit

2); documents outlining the roles and responsibilities

of Mattel Corporate Responsibility Organization

Worldwide; Disney sourcing policies and procedures,

which apply to all Mattel facilities and contractors that

source Disney products worldwide; and, policies and

procedures that apply to all Mattel facilities and oper-

ations that license Mattel-branded products.

Exhibit 2

Global Manufacturing Principles. Mattel. Inc. 2001

Scope: Mattel’s GMP policy applies to all parties that

manufacture, assemble, or distribute any product, or

package bearing the Mattel logo.

Exhibit 2 continued

Purpose: GMP is the cornerstone of Mattel’s ongoing

commitment to responsible worldwide manufacturing

practices. The establishment and implementation of GMP

provides a framework within which all of Mattel’s man-

ufacturing must be conducted.

GMP provides guidance and minimum standards for all

manufacturing plants, assembly operations, and distribu-

tion centers that manufacture, assemble or distribute

Mattel products. GMP requires safe and fair treatment of

employees and that all locations protect the environment

while respecting the cultural, ethnic, and philosophical

differences of the countries where Mattel operates.

Introduction: As ‘‘The World’s Premier Toy Brands-Today

and Tomorrow,’’ Mattel takes pride in the quality of its

products, its customer relationships, its employees, its

communities and its global reputation, as well as the value

built for its shareholders.

Mattel is committed to executing GMP in all areas of its business

and will only engage business partners who share its commit-

ment to GMP. Mattel expects all its business partners to enforce

GMP, and will assist them in meeting GMP requirements.

However, Mattel is prepared to end partnerships with those

who do not comply. Compromise is not an option.

Our values

The foundation for the successful implementation of

GMP lies within the Mattel core values. It is essential that

the company’s business partners share these values.

We value:

1. Our consumers

The well-being of children is an inherent part of the reason

that Mattel exists and this is reflected in all aspects of our

business. A child’s well-being is our primary concern in

considering the quality and type of toys produced, and in

the way Mattel toys are manufactured. At Mattel, we want

to inspire children’s imaginations and enrich their lives with

our products. Accordingly, Mattel is committed to creating

safe and quality products for children around the world.

Mattel products will be manufactured in a manner which

will meet its GMP stringent standards.

2. Our work

We strive for excellence and creativity in every aspect of

our business. Mattel understands that the implementation

of GMP is an on-going process, and is committed to

making continuous improvements to its GMP perfor-

mance as the company strives for full compliance.

We are dedicated to a creative approach in addressing areas of

particular concern and resolving compliance issues. We will

protect the environment and continue to reduce our use of

resources and materials. In every aspect of our business, we will

conduct ourselves with unwavering integrity.

490 S. Prakash Sethi et al.

Exhibit 2 continued

3. Our partners

We will share success with our customers, our sup-

pliers, our shareholders, and the communities where

we operate.

Our shareholders and customers demand that

Mattel products are manufactured and assembled

under ethical working and living conditions.

Enforcement of the company’s GMP policy illustrates

to customers and shareholders that Mattel shares their

concern and is committed to ensuring that Mattel

products are manufactured under conditions

that meet GMP standards.

We are also committed to supporting and working

closely with our individual vendors in complying with

GMP.

4. Ourselves

We operate with unwavering integrity and take

ownership of all issues that pass in front of us. We are

accountable for the results of our business and the

development of our fellow employees. We are dedi-

cated and committed to implementing GMP with

honesty and have incorporated measures to ensure

continual improvement in our performance.

While the development of GMP is essential to success,

enforcement of the code is equally as important.

Mattel has initiated an extensive three-stage auditing

process – that is overseen by an independent moni-

toring council – to thoroughly inspect both the

company’s-owned and -operated facilities

around the world, as well as those of our

contractors.

We will continue to refine GMP to ensure that all

employees are treated fairly, with respect, and work

under safe and healthy conditions that encourage

dignity and pride for themselves and their

workplace.

Our commitments

Mattel will operate its facilities in compliance with

applicable laws and regulations of every country where

the company operates. In countries where the laws are

not well defined, Mattel has developed country-

specific standards that govern our operations

and those of the companies that manufacture,

assemble, or distribute our products.

Mattel has defined the following basic standards of

conduct to guide Mattel and each of its business

partners’ operations in implementing GMP. These

standards are dynamic and evolving to ensure ongoing

protection of employees and the

environment.

Exhibit 2 continued

1. Hiring, wages, and working hours

a. Work hours: Mattel will comply with country laws.

Overtime work must be voluntary.

b. Work week: We will comply with country laws but

require at least one rest day per week.

c. Wages: Wages must meet or exceed legally mandated

minimum wage. Wage rates for overtime work must also

meet legally mandated rates.

d. Benefits: All benefits provided to employees must

comply with country laws.

e. Payment of wages: Employees must be paid at least

monthly. Accurate records for each employees regular

and overtime hours must be maintained either through

time cards punched by each employee or through other

similar systems. Pay records must include employee work

hours; and every employee must be provided a pay stub

with pay calculations and deductions clearly listed.

f. Deductions: Deductions must comply with local laws.

Deductions for company provided food and living must be

reasonable, affordable and if employees choose to live and eat

outside of the company facilities they will not be charged.

g. Hiring: Every employee must be provided a written docu-

ment which outlines their work hours, wages, wage calcula-

tions, benefits, costs for food and living, and length of

employment contract. Mattel and its partners will not charge

employment fees and we will monitor our hiring agencies to

ensure that fees are reasonable.

2. Age requirements

a. No one under the age of 16 will be employed. If the

local law requires a higher minimum age, we will

comply with the local law.

b. In cases where employees are hired between 16 and 18

special considerations must include annual physicals and

will exclude hazardous duties.

c. A system must be in place to detect forged and false

identity documents.

3. Forced labor

a. Under no circumstances will forced or prison labor be

used to manufacture, assemble, or distribute Mattel products.

Each employee must be provided with a document stating

that employment and overtime is voluntary.

b. Mattel will not allow or condone physical or verbal abuse, or

any form of physical or psychological coercion of employees.

c. There must be a written grievance procedure in place.

d. Every employee must be provided with general ori-

entation on GMP as well as the local company code that

includes: wages, working hours, dormitory rules, canteen

procedures, grievance procedures, disciplinary proce-

dures, safety training, evacuation, fire prevention, self-

improvement opportunities, and a plant tour.

491Global Manufacturing Principles

Exhibit 2 continued

4. Discrimination

a. The location must have a procedure on hiring, pro-

motion, and disciplinary practices that addresses dis-

crimination. Discrimination or harassment on the basis of

age, religion, sex, or ethnicity will not be tolerated.

b. Mattel will make every attempt to further employee

job skills through training.

The company will give strong preference

to promotion from within the ranks of the current

employees. No employee will be denied promotion

opportunities for reasons of age, sex, ethnicity, or reli-

gion.

5. Freedom of expression and association

a. Each employee has the right to associate, or not to

associate, with any legally sanctioned organization.

b. Management must create formal channels to encour-

age communications among all levels of supervisors and

employees – without fear of reprisal – on issues that

impact their working and living conditions.

c. Senior managers must hold quarterly meetings with all

levels of employees to share information and discuss

plant-wide issues.

6. Living conditions

a. Dormitories (if provided)

i. Every employee must be provided with adequate

living space.

ii. Ventilation must be provided.

iii. Showers and bathrooms must be convenient,

centrally located or in the room.

iv. Lockable storage space for each employee must be

provided.

v. Hot water must be provided.

vi. Dormitories must be maintained, clean and safe.

vii. Safety hazards must be eliminated.

b. Canteens (if provided)

i. Canteen staff must have annual physical

examinations.

ii. Canteen staff must wear clean clothing with proper

protective equipment when serving food.

iii. Canteens must be clean, well lit, and free of food

scraps.

iv. Refrigeration must be available if perishable food is

stored.

v. Tables and chairs must be provided.

vi. Meals provided must meet nutritional

requirements.

Exhibit 2 continued

7. Workplace safety

a. There must be trained or certified safety

professionals and a written safety program must be

developed.

b. Combustible materials must be properly handled

with special precautions taken in spraying and mixing

areas.

c. Machines with revolving or moving parts must be

guarded and employees will receive special training on

the use of this machinery.

d. Hazards must be eliminated where possible.

Employees must be provided and trained on the use of

personal protective equipment where hazards cannot be

fully eliminated.

e. Mattel will identify all hazardous materials and prop-

erly train employees on the appropriate procedures for

handling these materials.

f. Safety training must be conducted for special work

categories (industrial trucks, electricians, maintenance,

painters, molding operators, etc.).

g. Employee exposure to chemicals and vapors must be

below legal requirements or Mattel Standards

whichever is the most stringent. In special cases where

ventilation cannot eliminate the exposure, respiratory

protection will be used and employees trained.

h. All accidents must be investigated and corrective

actions documented.

i. All locations must continuously reduce accident rates

and have specific targets on reductions.

8. Health

a. In locations where there are more than 1000

employees, there must be an on-site medical facility for

routine medical treatment and work-related injuries. In

locations where there are less than 1000 employees

treatment must be available to employees within 15 min

if there is not a clinic on-site.

b. The facility must have lighting which meets

Mattel’s standards or local requirements, whichever are

higher.

c. Temperatures must be measured during hot and cold

seasons and if they exceed local or Mattel standards

corrective actions must be taken.

d. Noise must not exceed 85 dB. Hearing protection

must be used in any areas that exceed this limit.

If the local limit is lower, the lower limit will

be used.

492 S. Prakash Sethi et al.

Exhibit 2 continued

9. Emergency planning

a. Emergency plans for evacuation, spills, and natural

disasters must be current and identify key responsibilities.

b. Emergency evacuation signals must be understood and

audible in all locations of the facilities.

c. Emergency exits must meet local or Mattel standards.

d. Emergency lighting must provide immediate (within

5 s) and sufficient lighting to allow evacuation.

e. Fire extinguishers must be provided and employees

designated to use fire extinguishers must be trained.

f. Employees must be trained on reporting emergencies

and evacuation procedures.

g. Emergency equipment and respective documentation

must be maintained.

h. Special protective and prevention systems like ‘‘hot

work’’ must be used when open flames are present.

10. Environmental protection

a. Trained environmental personnel must be assigned to

manage the areas of air and water emissions and waste

management.

b. Hazardous wastes must be properly contained, stored

and only disposed of at approved facilities.

c. Water discharges must meet local requirements or

Mattel’s standards.

d. Mattel will quantify its wastes and continually reduce

them.

e. Air emissions must meet local requirements or Mattel’s

standards.

f. Any and all spills or releases must be immediately

cleaned.

g. Odors and noise that cause undue disruption to the

community must be eliminated.

h. Plans to handle environmental emergencies must be

current and identify key responsibilities.

11. Evaluation, corrective action, and monitoring:

a. Mattel and its business partners will undergo an audit

process to assess compliance with GMP. This process

must include a corrective action plan to ensure that audit

findings are corrected and GMP compliance achieved.

Mattel will work closely with all business partners to

ensure that corrective actions are completed in a timely

manner.

b. In cases where corrective actions are not taken in a

timely manner, Mattel will identify alternative suppliers.

However, Mattel is prepared to terminate any operation

or partnership where compliance is not achieved within

the time frame agreed upon. Mattel will not engage

potential business partners unless they meet the com-

pany’s stringent requirements or are committed to

achieving full compliance.

Exhibit 2 continued

c. Mattel’s commitment to the public includes verifica-

tion audits by an independent monitoring organization

to assess the GMP performance of Mattel and its business

partners. An independent monitor will conduct periodic

evaluations of a select number of locations of its choosing

to verify compliance with GMP standards. They will be

provided with complete access to all information and

facilities in order to make an evaluation of Mattel’s

performance in ensuring that Mattel locations and those

of its partners meet GMP standards. The independent

monitor has the discretion to periodically issue reports to

the public on our progress a

a Committee on Energy and Commerce (2007, August

22). Letter to Mr. Robert A. Eckert re: Subcommittee on

Commerce, Trade, and Consumer Protection of the

Committee on Energy and Commerce Hearing. Re-

trieved December 2007, from http://energycommerce.

house.gov/images/stories/Documents/PDF/selected

legislation/Mattel.082207.pdf; Normile, Bob. (2007,

September 5). Response of Mattel, Inc., to the August 22,

2007 Information Request from the Subcommittee on

Commerce, Trade, and Consumer Protection. Retrieved

from http://energycommerce.house.gov/images/stories/

Documents/PDF/selectedlegislation/Mattel.090607.

response.082207.pdf; Chairman Dingell at the Subcom-

mittee on Commerce, Trade, and Consumer Protection

hearing entitled ‘‘Protecting Children from Lead-Tainted

Imports’’ (2007, September 19). Retrieved from http://

energycommerce.house.gov/index.php?option=com

content&view=article&id=114&catid=18:platforms&

Itemid=58; Hearing before the Subcommittee on Com-

merce, Trade, and Consumer Protection (2007, Sep-

tember 19) (testimony of Robert A. Eckert). Retrieved

from http://energycommerce.house.gov/images/stories/

Documents/Hearings/PDF/110-ctcp-hrg.091907.Eckert-

testimony.pdf; Consumers Union. (2007). Retrieved from

(http://energycommerce.house.gov/images/stories/

Documents/PDF/selectedlegislation/FoodSafety.Consumers

UnionReport.pdf); Edelman, Adam and Nichols, Adam.

(2007, August 15). Big Recall Rerun by Mattel:

9.3 million more toys from China have lead paint or

deadly magnets. Daily News. Retrieved from http://

www.nydailynews.com/news/national/2007/08/15/

2007-08-15bigrecallrerun.html; Barboza, David. (2007,

September 11). Problems Go Beyond Lead Paint, Cana-

dian Study Says. New York Times. Retrieved from

http://query.nytimes.com/gst/fullpage.html?res=9404E5

DC1F31F932A2575AC0A9619C8B63.

493Global Manufacturing Principles

Explicit exclusions

The original GMP (Exhibit 1) included product

safety as an integral part of the GMP provisions. In

practice, however, both Mattel and MIMCO agreed

that initial focus would be on worker employment,

health, and safety issues as well as monitoring of

emissions from factories. MIMCO felt that this was a

good arrangement since it was in Mattel’s own

interest to ensure that its toys were safe and met all

regulatory requirements applicable in U.S. and other

toy importing countries.

As things turned out, MIMCO’s assumptions

were not borne out by realities. The culture of

product safety is not so thoroughly embedded in

developing countries where expectations toward

adherence to product safety standards are generally

lower than those prevailing in industrially advanced

countries. Given the fact that factories in China need

constant monitoring to ensure compliance with local

employment laws, neither the company nor MIM-

CO should have assumed that factory owners would

not be tempted to cut corners and save money using

substandard materials and lower safety standards in

the manufacturing process.

As the world’s largest toy manufacturer, Mattel

has had more than its share of safety-related product

defects. Mattel also has had a long history of con-

tentious relations with regulators, notably the Con-

sumer Product Safety Commission (CPSC), which

has repeatedly charged the company with violating

its rules for timely notification pertaining to safety-

related product defects. This contention is consis-

tently denied by the company, which sticks to its

own interpretation of the regulatory requirements

for timely disclosure (CNN Money, 2007). Never-

theless, the company had paid numerous fines for

alleged violations, and in a number of cases settled

with individual consumers (Casey, 2007). The latest

in this sequence of events was a civil penalty of

$2.3 million paid by Mattel in 2009 for violating

Federal Lead-paint ban. ‘‘In retrospect,’’ Murray

Weidenbaum, a former MIMCO board member,

told Jonathan Dee of the New York Times, ‘‘the

mission we were assigned was narrower than perhaps

it should have been. We focused on the working

conditions, because that was our task, and because

critics at the time were focusing on it – child labor,

prison labor, all that. It turns out we missed the big

picture, which is the nature of the product’’ (Dee,

2007).

Implicit exclusions

The preamble to Mattel’s revised GMP states:

Scope: Mattel’s GMP applies to all parties that

manufacture, assemble or distribute any products or

package bearing the Mattel logo. Similarly, Section

II of revised GMP states: ‘‘Mattel and its business

partners will undergo an audit process to assess

compliance with GMP….Mattel’s commitment to the public includes verification audits by an inde-

pendent monitoring organization to assess the GMP

performance of Mattel and its business partners

[emphasis added] (See Exhibit 2).’’

In practice, however, this did not turn out to be

the case. From the very start of the independent

monitoring process, Mattel resisted every effort by

MIMCO to provide information about its licensing

partners, i.e., companies that make products using

Mattel logo, e.g., Barbie sleepwear, children’s fur-

niture. The company initially argued that given the

enormity of the task at hand, MIMCO should focus

on auditing Mattel-owned and controlled plants and

vendors that make products for Mattel. It was also

suggested that Mattel was setting up its own internal

organization to monitor all of its licensees and thus

any audits by MIMCO should be postponed until

such time that Mattel had completed its in-house

organization and implemented initial audits.

However, despite repeated requests, Mattel never

provided MIMCO (and its successor ICCA) with

any information about the scope of its licensee

operations; the extent to which they have been

audited by Mattel’s in-house auditing organization;

and, the overall state of licensed compliance with

GMP. During the period, 1999–2008 when MIM-

CO (and ICCA) were responsible for GMP external

audits, there were numerous incidents and news

media reports of worker abuse and poor factory

conditions in Mattel’s licensee factories. All of these

were handled by Mattel without any involvement by

MIMCO or ICCA. It should also be noted that

Mattel does not separately disclose revenues from

licensee operations in its financial statements. They

are consolidated in the company’s total sales.

However, the consensus is that these operations

account for almost 50% of Mattel’s total sales.

494 S. Prakash Sethi et al.

Framework for a viable external audit regimen

A basic premise of MIMCO’s audit regimen was that

Mattel would create an in-house auditing organiza-

tion that would be responsible for conducting GMP

compliance audits of its own plants and those of its

vendors and licensees. MIMCO would in fact be

verifying the quality and veracity of audits con-

ducted by Mattel’s own people. This is a critical

distinction because any shortfalls in factory compli-

ance discovered by MIMCO would also imply a

failure on Mattel’s part in carrying out its own

auditing and monitoring responsibilities.

MIMCO established a systematic 3-year cycle to

meet its obligations for external audits. The first year

of the cycle would concentrate on Mattel facilities.

These would include all of the company-owned

plants and other plants in which Mattel controlled

100% of the output. The second year would focus on

a sample of the plants owned and operated by Mattel’s

strategic partners and primary suppliers and from

which Mattel buys 70% or more of the plant’s output.

The third year of the audit cycle would focus on a

statistically selected sample of second-tier plants from

which Mattel buys between 40 and 70% of the plant’s

output. This audit cycle would be repeated on a

3-year basis. This approach ensures that every plant in

a group has an equal chance of being selected for a

verification audit where no plant has prior knowledge

of being selected. Vendor Plants with less than 40%

of the output dedicated to Mattel products were

excluded from MIMCO audits. Plants in each group

would be subjected to MIMCO audits once every

3 years. In addition, MIMCO had complete discre-

tion to include additional plants in its audit sample in

order to arrive at a more accurate picture of how well

Mattel’s strategic partners and primary suppliers were

complying with GMP requirements.

MIMCO’s audit protocols

MIMCO had to create its own audit protocols and

audit instruments. The objective was to ensure that

MIMCO audit reports were comprehensive and

provided the public at large a fair, objective, and

unbiased picture of conditions in the audited plants.

These comprised four elements: Management

Compliance Reports; Payroll and Personnel Files

Desk Audits; Systematic Walk-Through Examina-

tion of the Plant and Dormitories; and one-on-one

Worker Interviews (Exhibit 3).

Exhibit 3

MIMCO(ICCA) Audit Protocols

The implementation of Mattel’s GMP is carried out

according to detailed standards of performance as pre-

scribed by detailed checklists tailored to meet the specific

legal requirements of each country as well and/or Mattel’s

GMP, whichever is more stringent.

Pre-audit preparation

Prior to the on-site audit, ICCA formally requests

information from the plant management regarding its

operational and human resource management practices.

The Management Compliance Report (MCR), is a

standard document which contains detailed information

on all aspects of the plant’s operations, the extent of

management’s compliance with various GMP provisions,

details of any shortfalls, and management’s plans for cor-

rective action. ICCA also reviews reports of all in-house

audits conducted by Mattel’s internal audit department.

The field audit

Intent of the field audit is to ensure that all workers receive

wages for regular and overtime work as mandated by law;

the factory operates within legal and GMP standards as to

regular and overtime hours; and provides benefits as

mandated by law and GMP standards. The field audit

comprised four parallel activities. The first one is an audit of

a randomly selected sample of workers personnel files and

payroll records. Contracted professional auditors who have

extensive knowledge of China’s labor laws and local

accounting practices conduct this audit under ICCA

supervision. Where complex issues of interpretation of

China’s labor laws and regulations are required, ICCA

relies on advice from its legal counsel in China.

The second element of the audit involves interviews with

the same group of workers who were selected for the

payroll and personnel file audit. Each worker is inter-

viewed individually in a private, secured space to ensure

complete confidentiality. A typical interview lasts around

45 min. The interview questionnaire was developed by

ICCA and is designed to elicit information on all aspects

of the workers’ working and living conditions at the

plant. This process allows for a comparison of the infor-

mation contained in the plant’s payroll records and per-

sonnel files, and the information elicited from the workers

through the interviews. Professional interviewers,

retained independently by ICCA and generally meeting

the age and gender profile of the workers, conduct these

interviews in the workers native language.

495Global Manufacturing Principles

Summary of audit findings

The first round of audits was initiated in the second

half of 1998 and was in the nature of dry runs. Their

intended purpose was to familiarize both plant

managers and factory owners with the expectations

of GMP audits and how they would be conducted.

At the same time, it would provide MIMCO

members with an understanding and appreciation of

the field conditions they would face while con-

ducting GMP audits.

The formal audits started in earnest in the latter

half of 1998 and continued through 2008 when they

were unilaterally discontinued by Mattel. 3

To facilitate better understanding and compre-

hension of the audit findings, we have grouped them

in four categories:

1. Mexico – All plants owned and operated by

Mattel.

2. China – All plants owned and/or operated

by Mattel.

3. China – All plants owned and operated by

suppliers.

4. All plants owned and operated by Mattel in

Indonesia, Malaysia, and Thailand.

Mexico

The first round of formal audits took place on Au-

gust 2–6, 1999 and initially involved two plants.

Montoi S.A. de VÆC. in Monterrey and Mabamex S.A. de V.C., Tijuana. Both plants were dedicated to

the production of Barbie dolls and other Mattel-

branded toys. The Tijuana plant was moved to its

current location in April 1998, and was still under-

going the process of ‘‘settling in.’’ During the initial

MIMCO visit to Monterrey, the audit team was

shown the location and partial construction of a very

large new Mattel plant titled MX3. The new plant

incorporated all the activities from the old Monter-

rey plant. The first formal audit of MX3 was con-

ducted on November 7–8, 2000.

The Monterrey factory had a peak employment of

approximately 2300 workers, and the Tijuana plant

around 2150 workers. These numbers were con-

siderably reduced during the off-peak season.

MIMCO’s audit found the Monterrey plant to be

a well-managed facility and commended its man-

agement for its commitment to GMP standards.

Montoi while being an old plant with non-air-

conditioned workspace was also well-maintained

and in general provided a clean safe environment.

Exhibit 3 continued

The third element of the audit is a thorough examination

of the plant’s policies, procedures, and practices with

regard to environment, health and safety issues. The EHS

audit entails:

• An evaluation of the MCR completed by plant management, indicating the extent of compliance with

Mattel’s applicable checklist;

• A ‘‘walk-through’’ of the plant; and • Examination and verification of site history, permits, monitoring, surveillances, and compliance documenta-

tion as required by law.

China-based independent environmental engineers who

are trained in China’s laws and regulations in manufac-

turing operations conduct this phase of the audit under

SICCA engineers’ supervision. Inspection includes an

examination of the general maintenance of the manu-

facturing facilities, storage, treatment and disposal of

hazardous waste materials, hygiene in bathrooms, kitchen

and eating facilities with particular emphasis on safety and

health. The walk-through also includes a thorough

inspection of the dormitories and recreational facilities in

terms of hygiene, adequacy of space, worker comfort,

privacy and security, and other related matters as deemed

appropriate in specific situations.

The final element of the SICCA audit is a series of

meetings with various functional managers which serve to

confirm and clarify issues in the MCR and elaborate on

the plant management’s practices regarding issues that

emerge during the field audit.

Post-audit activities

All audit documents are hand-carried to the New York

offices of ICCA for analysis and report preparation. Initial

findings are reported to Mattel to ensure factual accuracy.

In case of a material error, ICCA revises the draft report

before making it public. In other cases, Mattel responds

with corrective action commitments. ICCA assesses this

response and indicates the extent of follow-up to be

undertaken by ICCA to ensure full and timely compli-

ance. The audit report indicates the findings of the audit

as well as Mattel’s responses and commitments. In the

event of a disagreement between ICCA and Mattel as to

the nature of findings or the adequacy and timeliness of

corrective measures, both perspectives are made public

without any editing by ICCA or Mattel.

496 S. Prakash Sethi et al.

Montoi met all of the important GMP standards

with regard to the workplace, environment, and

maintains detailed records on various aspects of

manufacturing operations and employee status.

Analysis of the plant’s payroll records and worker

interviews also confirmed that the Montoi plant

met all regulations of the Mexican government as

well as GMP standards with regard to the payment

of wages for regular and overtime work. MIMCO’s

one-on-one confidential interviews with a randomly

selected group of workers confirmed a high level of

satisfaction with all aspects of their work at the plant.

The formal audit of the Tijuana plant (Mabamex)

also revealed a satisfactory picture. The Mabamex

plant satisfied all regulations of the Mexican govern-

ment as well as GMP standards with regard to the

payment of wages for regular and overtime work.

Mabamex was a well-maintained, clean and com-

pletely air-conditioned facility. A small group of

workers, however, expressed concerns about exces-

sive noise and poor ventilation. MIMCO’s own

inspection attributed these deficiencies to the plant’s

recent relocation. These deficiencies were soon rec-

tified and confirmed by MIMCO.

At the time of the audit, MX3 was a brand new

facility in the start-up phase with approximately

1500 workers during peak period. It is a very

modern and completely air-conditioned facility; the

factory manufactures large toys using primarily

injection and blow molded parts. The workforce is

predominantly female, and relatively young with

low level of education and little prior work experi-

ence. The plant had high levels of worker turnover,

i.e., 235% a year, which may go even higher during

certain months.

The field visit turned out to be an unpleasant

surprise, especially given the fact that it was a brand

new facility. The new plant was already showing

signs of severe neglect in both routine and pre-

ventive maintenance. Furthermore, the flow of

materials, processing, waste handling, storage and

disposal, suggested a disregard of normal safe han-

dling procedures. The molding area of the plant was

unkempt with oil spills on the floor, draining into an

open channel. There were large amounts of make-

shift electrical wiring and bare electrical connections.

In several places, live electrical cords were lying

across employee pathways. These conditions created

an unacceptable level of hazard for workers and in-

creased danger of fire in the plant. The same level of

neglect was also observed in kitchen, canteen, and

dormitory facilities. There appeared to be little

emphasis on the use of personal protection equip-

ment (PPE). Most employees working in high noise

contaminated areas did not wear earplugs. MIMCO

also noticed open containers of volatile flammable

liquids stored in assembly areas.

The plant was in full compliance with regard to

working hours and payment of regular and overtime

hours. In other areas of worker treatment, the

MIMCO team found the factory’s practices ques-

tionable. All MX3 workers, whether in molding or

assembly areas, are required to stand through their

entire work shifts. This was an unprecedented situ-

ation. In all of MIMCO audits of Mattel-owned and

operated facilities in Asia and Mexico, it did not find

a single plant where workers were not provided with

some type of stool or chair and were instead required

to stand through their entire work shift.

Management’s response to MIMCO’s draft audit report

MIMCO provided a report to Mattel’s management.

This was in accordance with established practice

wherein the plant management or general managers

have an opportunity to respond to MIMCO’s

findings. In response, for the first time, MIMCO

experienced considerable pressure from the opera-

tional level managers to modify its draft report,

suggesting we had over-reacted to isolated instances

and that management had already identified many of

these issues and was taking corrective action.

MIMCO was also provided with a list of ‘‘changes in

language’’ and urged to insert them in the draft

report.

The response from Mattel’s top management was

short and swift. It asked for a 90-day period to fix

the problems and invited the MIMCO team for a

full-fledged follow-up audit. In a written response to

MIMCO, Mattel stated:

We recognize that this report does not reflect favorably

on the performance of our MX3 facility. There are a

number of reasons that led to these conditions but

none justify MIMCO’s findings in November 2000.

We will not accept this performance and will not make

excuses.

497Global Manufacturing Principles

The follow-up audit in February 2001 revealed a

radically transformed factory. It would seem that

plant management had paid careful attention to

MIMCO’s audit findings and addressed them in a

systematic manner. MIMCO’s overall observation

was that in all essential areas, MX3 complied with

the GMP.

During the 6-year period 2001–2007, MIMCO/

ICCA conducted two rounds of audits covering all

Mattel plants in Mexico. In general, these plants

were found to comply with GMP standards. Where

minor shortfalls were found, they were considered

normal in any factory and were easily corrected.

Indonesia

Mattel’s Indonesian operations have undergone a

series of changes during the period 1999–2008.

These transformations involved both changes in

product mix and plant restructuring. Mattel-owned

and operated plants in Indonesia were audited by

MIMCO/ICCA in February 1999, May 2002, and

April 2008.

Initially, these plants were called Mattel Indonesia

Cikarang Plant (MJS) and Mattel Indonesia Cikarang

Baru Plant (MID). By 2008, the two plants were

operating as PTMI East and PTMI West. The East

plant is PTMI’s major facility. Most of the West

plant’s employees and equipment were relocated

into the East plant. Approximately, one-third of the

West plant was still operative. The on-going pro-

duction operations in the West plant primarily

consist of injection molding, spray painting, and pre-

assembly. The primary production processes at the

East plant were molding, spray painting, final

assembly and packaging. At the time of the third audit

in April 2008, PTMI employed 7000 people. How-

ever, the work force would increase to 10,000

employees during production peak season. The work

force consists of 65% permanent employees and 35%

temporary contract workers. Female workers con-

stitute 91% of the direct labor workforce. The average

age is 31 years and no one under the age of 18 is

employed.

While in Indonesia, during the second round of

audits in May 2002, Mattel informed ICCA that it

had outsourced some sewing operations to a pri-

vately owned factory located about 1.5 hour flight

time from Jakarta. ICCA team was invited to visit

the factory on an informal basis with the under-

standing that a formal audit would be conducted

during the next audit round of the Indonesian plants.

The visit indicated that the factory appeared to be

well-managed with over 500 workers dedicated to

manufacturing Mattel products. The team, however,

did not conduct any worker interviews. Nor did it

examine payroll records to ascertain employee wages

and working hours, and the extent to which they

complied with Mattel’s GMP. Mattel did not in-

clude this factory in the third and final round of

audits of the Indonesian plants and no further

information was made available.

General findings

Throughout the three audits, ICCA found the two

plants to be in general compliance with GMP stan-

dards for physical work environment, health, and

safety standards. The plants were also in compliance

with GMP’s requirements and Indonesian laws, with

regard to wages for regular and overtime work and

with the total number of work hours per week.

There were some deviations from GMP compliance

as applied to workers. These have been noted in the

sections below.

Principal areas of concern and disagreement

ICCA’s concerns with regard to compliance with

GMP were twofold. In some cases, the shortfalls and

deficiencies identified by the audit team were rec-

tified. However, in certain other areas where GMP

non-compliance was considered serious, satisfactory

corrective action was not taken.

Environmental protection, worker health and safety issues

In the 1999 audit, it was noted that there was the

presence of chemical odors, noise levels; although

PPE was available, its usage was not being enforced.

The 2002 audit showed no improvement: the noise

levels, especially in the roto-casting area to be 90 dB,

which was above the acceptable 85 dB level, but all

employees in the area wore protective earplugs. The

498 S. Prakash Sethi et al.

2008 audit confirmed that the EHS problems noted

in the previous audits were satisfactorily addressed

except for the noise levels, which exceeded the

Indonesian and Mattel in several locations.

Dormitories

The management and operation of dormitories

presented a major area of disagreement between

Mattel and ICCA, which remained unresolved

during the entire cycle of three audits over a 9-year

period. The principal areas of non-compliance per-

tained to (a) the maximum number of workers per

room, and, (b) a mandatory requirement that certain

workers must stay in the dormitories as a condition

of their employment. Mattel’s GMP requires that

the number of workers be limited to a maximum of

12 per room (16 for grandfathered facilities). This

was intended to provide the workers with a mini-

mum level of privacy and to minimize noise level

since the shift changes inevitably cause disturbance

to the workers who are sleeping. It was found during

all three audits that both dormitories were built to

accommodate 30 workers per room. Although, the

dormitory space allocated per employee met the

GMP guidelines, the number of workers per room

was far in excess of the 16 permitted in any one

room.

In response to the first audit, Mattel indicated that

suitable changes would be made in the re-configu-

ration of the larger rooms. The second round of

audit revealed that this change had not been made.

By the time of the third audit round in April 2008,

and despite its earlier promise, Mattel had failed to

undertake changes in the dormitory configuration.

At the conclusion of the third and last round of

audits, Mattel again assured ICCA that the necessary

changes in the dormitories would be made.

The second issue, which ICCA considered an

even more serious violation of GMP, had to do with

requiring workers to stay in the dormitory as a

condition of their employment. When this issue was

raised with the plant management during the first

post-audit meeting, the management offered the

following in defense of their policy:

(a) Most of the workers, who are both young

and female, come from villages and are not

used to independent urban living. Their par-

ents expect plant managers to provide these

workers with secure and safe living condi-

tions. This rationale, however, fails to offer

a justification for universal mandatory resi-

dency requirements, where local workers,

old enough to be responsible for their

actions, and, are married.

(b) Plant management also argued that since

workers accept the mandatory dormitory

living as a condition of their employment,

there was no violation per se of GMP stan-

dards.

MIMCO/ICCA disagreed with these contentions

and noted its disagreement in the formal audit re-

port. In response, Mattel agreed to find a mutually

acceptable solution prior to the scheduled second

round of audits.

The second round of audits noted some changes

in the company’s policies. Married and permanent

workers were no longer required to stay in the

dormitories. The relaxation of mandatory residency

standard for married and permanent workers had

resulted in the departure of a large number of

workers to private housing, leaving the plant with

unfilled dormitory space and a heavy fixed cost

burden of maintaining these dormitories while

generating even lower rental income.

By the third round of audit, the situation had not

changed. ICCA’s interviews with workers revealed

that many workers chose to pay the dormitory rent

to meet the mandatory residency requirement and

still opted to rent private housing in the surrounding

neighborhoods. This situation was also recognized

and confirmed by the plant management in post-

audit meeting with MIMCO/ICCA.

ICCA’s experience with regard to the dormitory

situation strongly suggested that while the nature of

non-compliance with GMP was unambiguous,

Mattel’s top management was reluctant to enforce

GMP standards upon the local managers. In ICCA’s

view, the primary consideration was money. Given

the changing demographics, workers were no longer

willing to stay in the dormitories. Consequently, the

cost of maintaining empty dormitories was a burden

that the company wished to avoid. However, the

issue has since become moot as Mattel had cancelled

its program of independent external audits by ICCA,

and thus avoided the embarrassment of publicly

disclosing its corrective action or lack thereof.

499Global Manufacturing Principles

Employee relations

The 2008 audit showed that 10% of the inter-

viewed workers were pressured to work overtime

even when they were unwilling to do so. Mattel

has assured ICCA that corrective actions will be

instituted and communicated to prevent the elim-

ination of unwilling overtime. Involuntary over-

time and verbal abuse by floor level supervisors was

not fully addressed by the time the 2008 audit was

completed.

Check-out time

Another major discrepancy in compliance with

GMP standards that has persisted over the entire

audit cycle of 9 years had to do with electronic

checkout time. Both plants have an electronic

system whereby workers swipe magnetic cards to

log their time for coming into the factory. How-

ever, their checkout time was not recorded by the

computer system. This situation was identified by

MIMCO/ICCA during the first round of audits in

1999. The plant management has consistently re-

sisted making changes, although it involved no

additional costs. Instead, it argued that since all

workers left at the same time at the end of their

respective shifts, it is easier for the supervisors to

log-in the time for all workers and that individual

clock-out was not necessary. Finally, in the post-

audit meeting in April 2008, Mattel agreed that the

plants would change their clock-out policies and

that all clocked employees would have their

checkout times recorded in the computerized re-

cords. However, ICCA has no further information

since Mattel has cancelled its program of indepen-

dent external audits.

Malaysia

At the time of the first audit round in February 8–10,

1999, Mattel had four plants in Malaysia. Since then

Mattel has closed two plants due to changes in de-

mand for its products and resultant downsizing of its

worldwide production facilities. The remaining

plants were Mattel (Malaysia) Sdn. Bhd. (MMSB),

and Mattel Tools Sdn. BHD. (MTSB). In addition

to the first round audit, the two plants also under-

went full-fledged formal audits in May 2002, April

2005, and April 2008.

MMSB

This plant is a dedicated facility for the production of

‘‘Hot Wheels’’ toy cars. It employs approximately

3500 workers on a year-round basis with additional

workers added during peak production periods.

MMSB’s workforce is unusual among Mattel’s plants

in that it tends to be somewhat older, more mature,

and with longer tenure of employment. Average age

of workers is 28 years and the average length of

employment is 13 years. For 40% of the interviewed

employees, this was their first job.

MMSB also participates in Malaysia’s guest worker

program, which is supervised by the Malaysian gov-

ernment. The plant hires guest workers, exclusively

from Indonesia, via recruitment agencies. At the time

of 2008 audit, there were over 800 such workers

comprising 29% of the direct labor workforce.

The MMSB plant is a well-maintained physical

facility and provides a safe and comfortable working

environment for its workers. Overall, workers have

indicated a high level of satisfaction with the safety

and quality of their work environment. The plant

safety and maintenance conditions were also con-

firmed by the MIMCO/ICCA audit team of experts

through an extensive ‘‘walk-through’’ of the plant

facilities and review of the company’s records with

regard to environment, and health and safety

requirements stipulated in the GMP in all three

audits in 2002, 2005, and 2008.

Malaysia has no minimum wage requirements.

MMSB pays market-based competitive wages that

are also in full compliance with Mattel’s GMP

Standards. An overwhelming number of workers

interviewed by MIMCO/ICCA during its four au-

dit rounds expressed satisfaction with wages, bene-

fits, working hours, and in the way they were treated

by the management. There were, however, some

complaints expressed by the workers during one-on-

one confidential interviews (2008 audit) about

pressure from supervisors to work overtime when an

employee was unwilling to do so.

With regard to maintaining electronic time

record, MMSB follows a similar practice that was

criticized by MIMCO/ICCA in the case of Indo-

nesian plants, i.e., workers swipe their magnetic card

while coming into the factory, but do not clock-out

upon completing their shift. Just as in the case

of Indonesian plants, the plant management’s

500 S. Prakash Sethi et al.

arguments in support of this practice were equally

untenable and spurious.

MMSB houses a very good clinic with four beds,

which is staffed with three nurses (one State Enrolled

nurse and two State Registered nurses) (RNs)

based on one RN per shift. There is no charge for

medical services or medicines provided to workers.

The plant operates two canteens accommodating

approximately 1800 workers per day. The plant pays

the workers a food allowance of RM 3.2 per day.

Cost of food at the factory’s canteens is approxi-

mately RM 2–2.5. Workers who bring their food

from home are entitled to the bi-weekly paid meal

allowance.

At MMSB, the dormitories and living conditions

are perhaps the best, home like, and pleasant, than any

other facility visited by MIMCO/ICCA. In terms of

the density in living space, and in relative level of

comfort, these facilities provide a very good inspira-

tional benchmark. At MMSB, all single-female fe-

male workers live in the dormitories. MMSB

management considers it necessary for the safety and

security of workers. Among the interviewed workers,

employee satisfaction with various elements of dor-

mitories and living accommodation ranged between

91 and 100%. In informal discussions with workers

during MIMCO/ICCA’s visit to the dormitories,

workers expressed tremendous pride in their living

accommodations. These dormitories generally meet

and exceed all pertinent GMP standards.

MMSB has a handicapped worker program that

deserves special mention. Under this program,

MMSB hires and trains blind workers and places

them in regular assembly line jobs. During the walk-

through of the plant, MIMCO/ICCA members had

the opportunity to observe these workers at their

workstations and talk to them about their work

experience. Without exception, these workers ap-

peared happy and proud of their work. We also

noted that there was no difference in the production

efficiency and safety levels of these and other plant

workers.

MDT

This audit report covers two plant sites used by

Mattel’s development and tooling operations in

Malaysia. The first facility called Mattel Tools Sbn.

Bhd. (MTSB) was audited in February 1999, May

2002, and April 2005, when it was renamed as

Mattel Development Tooling Sbn. Bhd (MDT).

The plant is located in the Prai Free Trade Zone area

outside Penang, Malaysia. It is a tool and dies

manufacturer, which supports Mattel plants world-

wide. The last audit was conducted on April 23,

2008 at a new site, which was also located in the Prai

Free Trade Zone area.

The plant employs around 180 workers. Of these

approximately 75% are direct labor (manufacturing)

and the remaining 25% are professional administra-

tive and clerical personnel. The workforce consists

of highly skilled technicians, and professionally

trained tool and die makers. Turnover among reg-

ular workers is quite low with the average work

tenure at the plant of 13 years. The gender com-

position of the workforce is 93% male.

MTSB is an efficiently laid out and well-managed

plant facility. It is completely air-conditioned. The

factory maintains detailed and up-to-date records on

plant maintenance, air filtration system, noise con-

trol, fire prevention, and safe storage and handling of

hazardous materials. The facility has satisfactory

compliance with GMP requirements.

Workers at MDT receive wages far exceeding

market rates for hourly workers. There is an

extensive and formalized communication system,

which facilitates two-way communications between

the employees and different levels of management.

Workers were almost unanimous in stating that they

would seek advice on personal problems from the

line leaders or supervisors.

MDT shares a clinic with MMSB and all workers

have full access to these facilities. MDT keeps first

aid boxes on its premises for immediate first aid

treatment. There is no charge for medical services or

medicines provided to workers. Food in the factory

canteen is provided by a contracted caterer. Costs are

subsidized by the factory and average RM 1.5–3.5,

(USD 0.39–0.92) paid in cash, per meal. The can-

teen serves four meals a day throughout all shifts.

The last audit of the MDT was conducted at the

factory’s new site. ICCA’s overall observations with

regard to MDT’s practices at the new site were quite

satisfactory. MDT has clearly established policies and

rules with regard to verbal or physical abuse,

including sexual harassment. However, in practice,

these rules did not appear to be effectively

501Global Manufacturing Principles

implemented. During ICCA’s confidential one-on-

one interviews with workers, almost 40% of the

interviewed workers felt that there was favoritism

and unfair treatment in employee appraisal for pro-

motion and assignment for overtime work. In re-

sponse, plant management provided a detailed plan

of action. Follow-up inquiries by MIMCO/ICCA

indicated that the issues were largely resolved.

A major point of contention in the case of MDT

is the factory’s practice with regard to maintaining

time records, identical to the one described in the

case of other plants in Indonesia and Malaysia.

Unfortunately, the responses by the plant manage-

ment are similarly untenable.

Thailand

MIMCO/ICCA has conducted four formal audits of

Mattel’s only plant in Thailand, MBK in April 1999,

May 2002, April 2005, and April 2008. The plant is

located in the Bangpoo Industrial Estate Export

Zone in Samutprakam outside Bangkok. It is a

wholly owned Mattel facility and is dedicated to the

exclusive production of Hot Wheels� brand toy cars. The factory is capable of producing 100 million

hot wheels cars a year.

Employment at MBK has ranged between 1350

and 1400 workers. Of these, 80% are direct labor

while the remaining 20% comprised clerical,

administrative, and supervisory staff. Almost 98% of

the workforce is female. The entire workforce is

over 18-year-old, and the average age is 29. The

level of education of the workers employed by the

plant is relatively low and averages between 6 and

7 years of formal education, which is equivalent to

slightly above primary school.

Throughout the four audits MIMCO/ICCA

found the plant facilities maintenance and upkeep to

be excellent and in full compliance with the Thai-

land government regulations and Mattel’s GMP

standards. MBK maintains up-to-date records with

all aspects of plant operations and management. The

‘‘walk-through’’ inspection of the plant showed the

factory to be in good operating condition. All work

areas were clean and free of oil spills and litter.

MIMCO/ICCA also noted, where applicable,

employees were using the proper personal protective

equipment (PPE) in all areas of the operation. The

usage of PPE appeared to be strictly enforced by

floor supervisors.

A recurring theme of discord among the workers

has been excessive heat in the factory as the plant is

not air-conditioned. The factory has launched a

major effort to reduce plant temperatures and in-

crease air circulation. The plant was being modified

by changing the configuration of ceilings, walls and

location of plant functions and other heat reduction

technologies such as air curtains at certain worksta-

tions. It is expected that when all the construction

work is completed the temperatures should decrease

by 3–5�C. MBK’s wages and benefits policies as well as

regular and overtime hours comply with Thailand

laws and GMP standards. ICCA’s examination of

factory’s payroll records confirmed the accuracy of

appropriate payments for the workers.

MBK employees are represented by a union

whose membership is voluntary. There is a standing

union committee, which is responsible for facilitat-

ing daily communications between workers and

plant management. Union leadership is elected

annually by the plant’s workers. Employees have

unhindered access to top management. MBK senior

management organizes regular plant-wide meetings.

MBK has installed computerized management

systems to ensure that each employee’s work hours

conform to Mattel’s GMP. This system checks every

day’s work schedule to make sure that they comply

with GMP provisions. MBK also practices not

swiping cards for time-out record keeping which is

similar to other Mattel-owned plants in Indonesia

and Malaysia. ICCA has already noted its objections.

The situation defies rational explanation and remains

a mystery to ICCA.

The plant houses a good clinic with five beds,

staffed by a doctor and a State Enrolled Nurse (RN).

The majority of injuries and sicknesses are burns,

cuts, and respiratory problems. There is no charge

for the medical services or medicines provided to

workers. Employees are given annual health exam-

inations free of charge.

MBK has no on-site residential facilities. All

workers live at home or make their own living

arrangements. MBK subsidizes 47% of the cost of the

meals. The kitchen and canteen are well lit and

clean. The factory kitchen and canteen can serve

three meals a day to all workers. All food handlers

502 S. Prakash Sethi et al.

are required to have an annual physical check-up. In

addition, workers may purchase other food items

from any of the five shops selling a variety of food

products.

MBK is been one of the best Mattel-owned and

operated plants audited by MIMCO/ICCA. The

plant has a stable cadre of senior managers who ap-

pear committed to operating a well-maintained and

smoothly functioning plant. The management has

also demonstrated a strong commitment to creating a

worker friendly work environment.

China

Mattel-owned and operated plants

ICCA conducted three rounds of formal audits

of the four Mattel-owned and operated plants in

China. The first two plants are Chang An (CA) also

known as Meitai, and Guan Yao (GY) also known as

Zhongmei. Both are large factories with each

employing between eight and nine thousand

workers during peak production periods and are

dedicated to the manufacture of Barbie dolls and

related toys. The third plant is Mattel Die Cast

(MDC), a medium-sized facility manufacturing die-

cast toys, which employs between 1000 and 2500

workers and is located near the GY plant. In 2006, it

was re-tooled to include plastic toys in its manu-

facturing portfolio. Workers in all three facilities are

mostly young, female workers.

The fourth plant, Mattel Engineering China

(MEC), employing about 350–400 workers, mostly

male and trained, professional technicians and engi-

neers, is dedicated to the manufacturing and repairing

of the tools and dies used in other Mattel plants

worldwide.

Mattel’s manufacturing arrangement in China is

based on a processing fee agreement with its local

partners, who are government-controlled entities. In

this business model, the local partner owns the

facilities and employs the workforce while Mattel

provides raw materials, equipment, and manufac-

turing engineering advice. The local partner is

compensated by Mattel based on production vol-

ume. While the final authority and responsibility lies

with the local partner 4

in matters concerning worker

rights, safety, and treatment, it should be noted that

the sole purpose of these facilities’ founding and

existence is to build Mattel toys for export.

ICCA conducted three rounds of formal audits of

Mattel’s China plants in 1999, 5

2003, and 2007.

They also involved several follow-up visits to all four

facilities through mid-2008. The purpose of the

follow-up visits was to evaluate the effectiveness of

corrective action plans submitted by Mattel to

ICCA. All these reports are made public and avail-

able on Mattel and ICCA websites.

Guan Yao and Chang An – the two plants

accounting for a majority of the workers – turned

out to be the Achilles Heel through the entire

duration of ICCA’s audit life cycle. From the very

start, ICCA had serious questions about the practices

in these plants with regard to proper compensation

of workers as mandated in China labor laws and

GMP standards. There were similar questions with

regard to legally mandated benefits, e.g., maternity

leave and annual leave, deductions for dormitory

rent, charges for food, etc. These issues continued to

be challenging through the entire duration of

ICCA’s involvement.

The process, however, turned out to be that

of a wave effect showing ebbs and flows but in the

end, nothing much changed. From the very start,

MIMCO/ICCA audits reported serious violations of

GMP standards and China law. In the early stages of

the audit process, Mattel’s internal group followed

through on ICCA’s findings with continued

inspections and advice to the plant’s management

for improved compliance efforts. Initially, Mattel’s

response to ICCA’s findings was quite proactive

even when it involved a significant cost in forms of

capital improvements. For example, during the ini-

tial audit, ICCA found a dormitory in such poor

condition that it was almost uninhabitable. How-

ever, the plant’s China partner argued that since the

dormitory was built long before the introduction of

GMP, it should be exempted from GMP standards.

This was an untenable argument and was rejected by

ICCA. For Mattel’s top management, this situation

was equally unacceptable. Consequently, Mattel

took the responsibility for rehabilitating the dormi-

tory. The improvements, mostly in the female

workers’ living conditions, were so significant that it

moved the Asia Regional Manager for Mattel to

comment as to the tremendous difference this audit

503Global Manufacturing Principles

had made to the lives of current and future workers

at the plant.

Unfortunately, ICCA’s experience with other

issues identified in the audit was not so encouraging.

As details in the following sections indicate, a

majority of other GMP non-compliance issues –

both substantial and routine – remained unresolved.

In every formal audit or its follow-up, either new or

equally blatant practices were observed or old ones

had resurfaced. Shortly after ICCA’s last audit in

2008, Mattel indicated that it would pay for some of

the important changes in the plants’ accounting and

record-keeping systems that were at the core of

opaque reporting of workers’ wages, working hours,

and working conditions. However, before these

changes could be monitored and confirmed, Mattel

decided to discontinue its independent external

monitoring program.

While Mattel’s responses toward mediation were

well intentioned and earnest, they were quite often

unsuccessful. It was apparent that Mattel’s China

partners were unwilling to make changes in their

record-keeping practices that would result in greater

transparency. There was also strong resistance to

making any changes that would incur additional

costs, which China partners were unwilling to

undertake. From ICCA’s perspective, the China

partners at the two plants viewed GMP as something

that belonged solely to Mattel and for Mattel to pay

for its implementation. However, it was not clear

that even if Mattel had agreed to pay for the nec-

essary changes that China partners would be willing

go along.

Audit findings

GMP awareness

A serious issue of concern at the start of the moni-

toring program was workers’ awareness of Mattel’s

GMP initiative. Without proper awareness of the

underlying principles, it would not be meaningful to

expect or monitor compliance. ICCA interviews

revealed that orientation programs and periodic

communication protocols did not succeed in this

area, with the exception of MDC, which showed

that 87% of workers were aware of the GMP.

Management concurred with ICCA’s findings and

promised to take appropriate steps to ensure all

workers’ GMP awareness. Follow-up audits of CA

and GY revealed that a good-faith effort was in place

and ICCA was convinced that the situation would

be remedied in a sustainable manner in the future.

The second round of audits noted that while the

smaller MDC and MEC plants sustained their

workers’ GMP awareness, GY and CA, the two

plants with the largest number of workers had not

made noticeable progress. By the time of the third

round of audits only 30% of GY and CA plant

workers were aware of GMP.

Working hours

The extent of maximum allowable work hours had

been the most vexing problem that ICCA had

encountered in its monitoring program in China.

The initial audit of CA and GY plants, in 1999,

encountered problems in the transparency and clar-

ity of payroll records. As a result, it was not possible

to make a determination as to the accuracy of

working hours and wage payments because of the

opaqueness of the factories’ record-keeping prac-

tices. The situation was also exacerbated by the

confusion among workers with regard to their

understanding of the pay stubs and their inability to

verify their wages. Following the audit, Mattel and

ICCA reached an understanding that the payroll

systems would be re-designed for transparency, and

that ICCA would revisit these plants within 1 year

to verify the compliance of new systems. There were

no payroll-related problems encountered in the

MDC and MEC plants during the first round of

audits.

ICCA’s second round of audits in 2003 found all

Mattel plants to have circumvented the spirit of

GMP via the use of several local variances, which

allowed them to exceed nationally mandated work

hours limits. These included: Consolidated Hours

which allowed a plant to schedule the total per-

missible yearly overtime hours (36 h per month for

12 months) during a shorter time span; Extended

Hours Permit which allows plants to schedule 60-h

workweeks throughout the year; Peak-Season ex-

tended Hours Permit which allows plants to schedule

custom-tailored work schedules based on their self-

stated needs. All four Mattel plants had secured these

three permits, albeit without the locally required

stipulations about their duration, and specific daily,

weekly limits. ICCA expressed concern over these

504 S. Prakash Sethi et al.

practices, recognizing them to be carte-blanche for

unfettered management liberties at the expense of

the workforce. This observation was also accompa-

nied by a formal request from Mattel to take a clear

stand on this issue and establish standards to which

these plants would adhere.

In 2006, Mattel responded by allowing for a

maximum of 12-h workdays and 60 to 72-h work-

weeks, where such weeks would be limited to 17 per

year. Furthermore, no worker would work in excess

of 13 consecutive workdays, ensuring at least one

rest day per week. Even though similar practices

were the norm in the region, this policy was in

violation of the Chinese labor law, as acknowledged

by Mattel.

ICCA’s 2007 audit found all four plants to exceed

the 12-h workday and 72-h workweek standards as

well as the 17-week limit on 60 to 72-h workweeks.

ICCA concluded that all applicable laws, permits and

standards, self-imposed, or otherwise, had been en-

tirely meaningless throughout 9 years of the moni-

toring program.

CA and GY had also created an arbitrary set of

rules denying workers overtime pay when they had

exceeded their regular hours work schedule rates

while workers were required to be on premises in

CA and GY plants. CA did not pay overtime wages

to line leaders for a maximum of 2 h per day even

though their workday may extend beyond 10 h per

day. MDC did not pay overtime wage if less than

30 min per day or if daily overtime exceeded 3.67 h

per day; workers were given time-off on other days,

but were compensated at regular wage rates. ICCA

requested that Mattel pay back wages to those who

were not paid at their entitled rates. Somewhat

similar, although less severe, problems were identi-

fied in MDC’s record-keeping system, which

resulted in workers being compensated based on

established production schedules rather than their

time card records.

Benefits and deductions

Contrary to the provisions of the Chinese labor law,

which allows for 90 days paid maternity leave, GY,

CA, and MEC plants were not extending any ben-

efits to their workers at the time of the first round of

audits. Upon ICCA’s observations of this issue, the

second round of audits noted some policy revisions:

GY allowed 1 month paid leave with 3-year tenure;

CA allowed 45 days paid leave to staff and was

planning to extend 90 days paid leave to all workers

in 2001. MEC and MDC complied with the law and

Mattel’s GMP regarding this issue. The second

round in 2003 revealed that GY and CA had

implemented their stated plans, and that MDC was

paying the benefit upon the workers’ return, thus

denying those who resign their entitled benefits. The

third round of audits conducted in 2007 found no

changes in the plants’ respective policies.

With regard to annual leave policies, three of the

four plants had been compliant with GMP standards

starting with the first round of audits; CA had no

annual leave benefits in 1999, and had planned to

offer 1 week paid leave to staff in 2001, extending it

to all workers in 2002. The 2003 audit observed that

the annual leave was offered only in December

(coinciding with factory closures leading to, and

through the Chinese New Year), and any worker

who resigned before then would forego their ben-

efits even if they were entitled. This policy was

changed to conform to GMP standards by 2007.

ICCA recognized that all plants made considerable

progress in meeting their obligations through the

third round of audits in 2007. Nevertheless, it noted

its disappointment that such apparent violations with

the resultant loss of income for the workers should

take so long to remedy in Mattel’s China plants.

Most workers in Southeast China come from

other provinces as guest workers. They also tend to

stay in the dormitories and eat in the cafeterias

provided by the factories. Chinese labor law allows

dorm and food charges to be deducted from the

workers’ paychecks, but not to exceed 50% of the

monthly minimum wage for the district. ICCA’s

first round of audits found no irregularities with

respect to deductions applied to workers’ earnings.

MDC had a noteworthy policy of providing free

food to all its workers during their employment.

However, during the second round in 2003, CA and

GY plants were found to be charging in excess of the

50% of minimum wage, which was also the standard

established by Mattel under GMP. The third round

of audits also noted a predatory policy on the part of

CA management, which required workers to opt in

or out of the dorm and meal plans for the duration of

their contract. For guest workers in the province,

and mostly first time employees, the practical impact

of this policy was to have 100% of the workforce on

505Global Manufacturing Principles

mandatory meal plans regardless of whether or not

they ate at the company canteens.

Environment protection, and worker health

and safety issues

Mattel’s China plants and notably Chang An and

Guan Yao plants, were equally lagging in their

compliance efforts, and reticent about providing

information with regard to these activities. Looking

back, the emerging theme through ICCA’s moni-

toring span of 9 years is that the Chinese plants had

not followed through with the environmental, health

and safety measures they had initially undertaken to

comply with Mattel’s GMP. Although, the plants had

started monitoring programs with commendable ef-

forts in terms of ensuring worker safety and envi-

ronmental consciousness, over the years, these efforts

had given way to a managerial attitude of ‘‘getting

away with investing as little as possible, while main-

taining compliance with the bare minimum stan-

dards.’’ Predictably, and unfortunately, instead of the

‘‘continuous improvement’’ culture, which ICCA

had signed on to facilitate, this approach resulted in a

continued deterioration of plants, facilities, equip-

ment, and ultimately, worker safety.

Mattel’s China vendor plants

Mattel outsources approximately one-half of its pro-

duction needs to about 40 major vendors in China.

Over the period of 2000–2008, ICCA audited 20 top

vendor plants. These factories represented approxi-

mately 75% of the total procurement of Mattel’s third

party manufacturing in terms of dollar value. These

are top tier vendors, and in a number of cases, these

plants are solely dedicated to the production of

Mattel-branded toys. All of the production facilities

are located in Guangdong Province in South China,

and offer employment to between 70,000 and

100,000 workers depending on the production cycle.

The compliance requirements for the vendor

plants are set up at a somewhat lower level compared

to the company-owned and operated plants. Never-

theless, they stipulate compliance with legal require-

ments as a minimum for acceptable performance.

ICCA’s work with Mattel China vendor plants

started in 2000–2002 with a series of initial vendor

consultation visits. These consultations were aimed

toward developing a better understanding of the

prevailing operating conditions in the supplier plants

and their impact on employees’ working and living

conditions. The findings provided a mixed picture of

the vendors’ performance (Sethi et al., 2000). In one

sense, this was to be expected considering the overall

low level of environmental and social performance

in locally owned and managed plants. Both Mattel

and ICCA anticipated that moving these plants

forward would demonstrate significant improvement

in their GMP compliance. There was also the im-

plied expectation that all else being equal, Mattel

would reward these plants with additional business.

First round of China vendor audits 2002–2003

The first round of formal audits of China vendors

was conducted in August 2002 and January 2003. It

covered 12 of the 20 plants that ICCA audited

throughout the program, and comprised approxi-

mately 50% of Mattel’s procurement budget from

China vendors. As a matter of commercial non-

disclosure agreement, all audited plants have been

assigned a number (e.g., Plant 1, Plant 2, etc.) and

are referred to by the corresponding number in all

Mattel’s and ICCA’s documentation (Exhibit 4).

Exhibit 4: Characteristics of plants

China vendor Number of

employees

Capacity

dedicated to

Mattel productsPlants no. Regular peak

Plant 1 3700 60%

Plant 2 1100 100%

Plant 3 1700 85%

Plant 4 1250 70%

Plant 5 9200 60%

Plant 6 8100 60%

Plant 7 7800 20%

Plant 8 6200 40%

Plant 9 3500 40%

Plant 10 5800 60%

Plant 11 1400 80%

Plant 12 4500 100%

Plant 18 4200 Not available

Plant 17 4200 Not available

Plant 21 2200 Not available

Plant 15 2400 Not available

Plant 14 8500 45%

506 S. Prakash Sethi et al.

The findings of the audit revealed a number of

areas where substantial improvements had been

achieved since the consultation visits. They also

indicated that more work needed to be done in

general maintenance of the facilities as well as in

treatment of workers. The audit established that there

were no under-age workers employed in any of the

audited vendor plants. Vendor plants were paying

appropriate wages for regular and overtime working

hours. There were also noticeable improvements in

health and safety standards although from a very low

starting point.

Dormitories and canteen facilities were a mixed

bag. In part, it reflected the unusual situation

wherein a unit of the local government built and

operated dormitories to meet the needs of a cluster

of factories. The situation created a conflict of

incentives and split responsibility. The dormitory

owner sought to maximize its profit margin by

building poor quality dormitories and skimping on

maintenance and upkeep. Factory owners did not

have enough influence on the dormitory providers

to improve cleanliness and maintenance. Instead,

some unscrupulous factory owners sought to earn

extra revenue from the difference in the rent they

changed to the workers and their actual costs.

The record keeping for work hours also showed

improvement from the conditions observed by

ICCA during the initial round of informal fact-

finding visits. A major area of persistent non-

compliance pertained to the maximum numbers of

hours worked, which invariably exceeded the legally

mandated standards and even somewhat relaxed

standards in the GMP.

The problem of excessive work hours had three

dimensions, which made it all but impossible to

comply with any of the legal or other standards, e.g.,

GMP.

1. Factory owners were strongly motivated to

get contracts from foreign buyers with prom-

ises of on-time delivery, which would be

impossible without resorting to work weeks

of 68–72 and more hours.

2. While foreign buyers made public display of

their anguish about excessive working hours,

there was no planning to create timely order

flow keeping in mind the plant capacity and

total labor available. This was equally true in

the factories that were completely dedicated

to manufacturing goods for a single buyer, in

which case the buyer (a) had to be fully

aware of the number of work hours/workers

that would be needed to fill the order and

(b) had total control over the production

process to restrict excessive hours.

3. In a majority of cases, workers themselves

were interested in working long hours to

earn more money from a meager base to

both support themselves while working, and

to save money for their families left behind

in their hometowns and villages. Therefore,

they would leave factories that did not pro-

vide work for lots of overtime hours.

4. To avoid problems with foreign buyers, fac-

tory owners often resorted to a variety of

accounting and bookkeeping tricks to create

superficial records to show compliance with

laws or voluntary code standards with regard

to regular and overtime working hours, and

payment of appropriate wages for those hours.

From this step, it was not too difficult for some

unscrupulous factory owners to use similar tactics

and thus underpay their workers for any work done.

Some vendors also manipulated wage calculations by

creating parallel system of piece rate (which was hard

to calculate and poorly understood by the workers)

and hourly rates (as required by the law) and thereby

making the system complex and opaque, which

invariably benefited the factory owner at the expense

of the workers.

During its various audits, it was observed that

Mattel had to deal with the reality of the market-

place and allow for working hours that exceeded

Exhibit 4 continued

China vendor Number of

employees

Capacity

dedicated to

Mattel productsPlants no. Regular peak

Smile Not available Not available

Plant 13 4000 50%

Plant 16 4600 Not available

Plant 19 2500 Not available

Plant 20 1900 Not Available

Plant 21 2000 Not available

507Global Manufacturing Principles

legal limits of maximum hours. Nevertheless, Mattel

succeeded in (a) maintaining a transparent and fully

verifiable system of time records, and even more

important (b) ensuring that workers received

appropriate wages for the number of regular and

overtime hours worked. Furthermore, Mattel’s

auditors were substantially successful in keeping to

minimum, and within reasonable limits, the deduc-

tions from workers’ wages for such items as dormi-

tory rent, cost of food, uniforms, medical charges,

cash fines for various work-related infractions, etc. It

was a continuing source of concern to Mattel and

ICCA since local factory owners were quite inven-

tive in finding new deductions that could be im-

posed on the workers. It should also be noted that

Mattel was quite reluctant to use its strongest

weapon, or even threaten to do so, namely, to drop

a factory from its supplier pool.

The situation with regard to plant maintenance

and prevention of contamination of air, ground, and

water resources has improved over the audit life

cycle, although there was considerable divergence

among different plants. In general, most of the fac-

tories were responsive to changes that would im-

prove overall routine maintenance of plant and

physical facilities, which were also conducive to

improving working conditions for the workers.

However, when it came to major equipment, pur-

chases, e.g., water treatment for paint removal, air

circulation systems, etc., there was considerable

resistance because the equipment required capital

expenditures that could not be directly related to

increased production. There was also the issue of lax

regulatory oversight, which further reduced any

pressure toward making needed improvements. A

third element had to do with lack of trained and

experienced personnel. In a number of cases, ICCA

observed that the factory had excellent equipment

but it was inoperable because of improper installa-

tion and poor upkeep. Areas showing significant

improvement included safety of workplace, dormi-

tories and canteens, workers’ access to all levels of

management, discrimination or promotion based on

sex, race or ethnic origins, and, significant reduction

in poor treatment of workers.

Most plants demonstrated increased attention and

concern for environmental issues both as they af-

fected the workers inside the plant facilities, and as

the plants’ air emissions, water discharge, and waste

treatment affected the surrounding areas. However,

overall upkeep as well as certain EHS aspects needed

further improvements.

Working hours

At the time of the first formal audit of vendor plants,

Mattel’s GMP did not have any adjustments in its

requirement for overtime hours that would address

variations in seasonal production. Instead, it re-

stricted the workweek to a maximum of 60 h,

including overtime. ICCA’s audit of the 12 vendors

visited during the first formal visit showed that all of

the vendors were routinely scheduling work hours

that were in excess of the 60 h per week limit

stipulated in the GMP, generally scheduling 66–72 h

workweeks based on a 6-day workweek.

Furthermore, in a number of cases, the Consoli-

dated Work Hours permits provided by local labor

bureaus were so outside the prevailing norms as to

question their authenticity. For example, the local

authorization permits received by Plants 10 and 11

included an authorization to exceed the maximum

annual overtime hours provided under the Chinese

labor law. ICCA had found no other instance of

similar extension in its audit work in China. The

permits for Plants 11 and 12 allowed them to work

1040 overtime hours during 2002, extending the

national China labor law limit of 432 overtime hours

by almost 250%.

Mattel’s GMP requirements obliged factories to

provide workers with a compensatory day-off within

30 days for work scheduled beyond 7 consecutive

days. Where a compensatory time-off day is not

provided within 30 days, workers must be com-

pensated at 2.0 times the normal wage rates. Of the

12 plants audited, five plants (3, 6, 7, 9, and 11),

representing 23,000 workers, or 43.4% of the total

workers covered in the audit, were unable to pro-

vide any records to show that they either provided

an alternate rest day within 30 days or compensated

their workers with double wages as required by the

GMP standards.

Mandatory overtime

Both China labor law and Mattel’s GMP require that

all overtime work must be voluntary and that

workers had the right to decline overtime work. In

reality, a large part of overtime is mandatory and

built into the workers’ employment expectations.

508 S. Prakash Sethi et al.

This is a common practice and is accepted by

workers. Therefore, from the perspective of the

workers, the issue of involuntary overtime arises

where (a) the implied consent as discussed above

does not apply, and (b) a worker’s request to be

excused from overtime work because of tiredness,

feeling ill, or other personal reasons has been denied.

For example, in the case of Plant 1, management

required that a worker must find a substitute

replacement before he/she is allowed to decline

overtime work. Similarly, some plants limited the

number of workers who could refuse mandatory

overtime (Plants 5 and 6). A particularly serious non-

compliance of voluntary overtime policy was dis-

covered by ICCA at Plant 12, where the entire

workforce of 4600 workers was asked to work on a

national holiday.

Appropriate payment of wages

While the payment of minimum wages and com-

pensation for overtime hours improved since initial

informal assessment, many plants were found to be

involved in questionable practices involving mone-

tary deductions from workers wages. One such area

included imposition of cash fines as a disciplinary

measure. Cash fines were found to be imposed by

five factories (Plants 1, 5, 6, 11, and 12) representing

50% of the workers covered in the audit. It should

be noted here that the imposition of cash fines is

permissible under Mattel’s GMP, which restricts

cash fines to no more than 20% of the legal mini-

mum monthly wage. Although individual fines im-

posed by the plants did not exceed the maximum

limit provided in GMP, the frequency with which

these fines were imposed, the total amount of funds

raised by the plants’ management through fines, and

the disposition of these funds raised questions as to

their effectiveness and utility. Vendors generally

indicated that funds collected through cash fines

were used for employee welfare activities including

holiday celebrations and other entertainment pro-

grams. The factory managers’ assertions in all these

plants, however, could not be verified because the

plants failed to provide any information or financial

records to show how these funds were expended.

Deductions

Another area pertaining to monetary deductions

involved charges for dormitory accommodations and

food served at the factories’ canteens. Plants 8 and 9

required workers to make an upfront, non-refund-

able payment of RMB80 as the cost of initial sup-

plies for dormitory living, such as bed sheets, towel,

etc. Plants 1 and 11 also imposed a mandatory

monthly fee charge regardless of where a worker

lived. Plants 7 and 11 imposed mandatory deduction

for food from workers’ paychecks, regardless of

whether or not they ate in the canteen. In Plant 1,

eating in the canteen was mandatory. In Plant 8,

although eating in the canteen was voluntary, many

workers were not aware of it and ended up paying

for it through mandatory deductions.

Record keeping

Areas needing improvement included record keep-

ing of rest day work receiving either double wages

or a compensatory day-off; inconsistent application

of regulations with regard to fringe benefits, e.g.,

maternity leave, annual leave, use of cash fines; and,

worker training with regard to safety, and inadequate

use of personal protective equipment.

Environmental protection issues

Most noteworthy issues that surfaced were inade-

quate attention to macro, environmental issues, e.g.,

treatment and disposal of wastewater, air and water

quality, ventilation, and a culture of inadequate

attention to general plant maintenance and opera-

tions. Most factories were in non-compliance in

varying degrees to GMP standards pertaining to

environmental issues.

Mattel’s response

In response to ICCA findings, Mattel provided

details of its remedial action. The company’s internal

auditors analyzed over 300 specific findings from

ICCA reports pertaining to the 12 plants. They

worked with individual vendors to develop plans for

corrective action to address the initial audit findings.

The company provided ICCA with a detailed report

showing how each change was organized and

implemented with a record of verification and,

where appropriate, provided for ICCA’s review,

copies of proper certification from appropriate

government agencies and professional bodies. The

company also provided photographic evidence of

509Global Manufacturing Principles

new and repaired installations indicating the extent

and scope of corrective measures taken by the ven-

dors in cooperation with Mattel. As a result, of the

12 plants in the original audit, ICCA undertook a

follow-up audit of the seven plants (Plants 1, 2, 3, 6,

9, 10, and 12) to verify the adequacy of compliance

efforts. The follow-up audit indicated that with the

exception of two plants (Plants 1 and 12), all plants

were in full compliance with the GMP standards.

The improvement of vendor plants performance

since the initial visits, and Mattel’s robust corrective

action in response to ICCA findings marked sub-

stantial progress in China vendor plants’ manage-

ment and oversight.

China vendor audits 2004–2007

Over the period of 2004–2007, ICCA undertook

formal field audits of nine additional plants as well as

follow-up visits to the vendor plants that were found

to be at various levels of violation of Mattel GMP.

The audits revealed that the plants were generally in

compliance with the main provisions of Mattel’s

GMP that were considered to be ‘‘zero tolerance’’

issues, e.g., child labor, forced labor, minimum

wage, and discrimination at hiring.

Nevertheless, a number of questionable practices

were discovered in relation to plant upkeep, use of

PPE, workers’ access to bathroom facilities and

drinking water, and monetary deductions. Most

common practices included charging workers for a

medical examination required upon hiring, addi-

tional sets of uniforms, factory IDs, and offering

maternity payment for workers only if returned to

the factory after 90 days of leave. The issue of ex-

tended overtime continued to be a general practice

at most of the plants. However, management had

improved its compliance with securing Consolidated

Work Hours permits, and violations in the overtime

scheduling, although occurring in some instances,

were no longer found to be a routine issue.

Another disturbing practice found at China ven-

dor plants had to do with the plant management

coaching of production workers in order to ‘‘pass’’

the inspection. In ICCA’s audit practice, such inci-

dents happened twice: in Plant 18 during initial

formal audit in 2005 and in Plant 1 during its second

formal audit in 2008.

Although Mattel management and its internal

audit department continued to cooperate with the

ICCA audit team in examining areas of compliance

concerns and assuring ICCA in taking remediation,

the changes in vendor plants’ operations did not

address all key findings, and in many cases included

only policy and documentation improvements.

ICCA’s follow-up visits found numerous instances

of continuous violation of maternity leave policies as

well as persistent workers’ complaints on inadequate

access to bathrooms and drinking water during

production hours. This situation is particularly

troublesome, as improvement of workstation leave

permits or payment of benefits should not pose any

capital or operational burden on the plant manage-

ment.

ICCA’s first round of audits and follow-ups noted

that both the vendors and Mattel internal audits had

emphasized worker-related issues, i.e., employment

of underage workers, excessive work hours, poor

record keeping, and payment of improper wages for

regular and overtime work. This was to be expected

since these issues were closely identified with alle-

gations of sweatshops. ICCA’s audit team strongly

indicated that worker health and safety issues and

environmental concerns dealing with air, water, and

ground pollution were an integral part of GMP and

China labor laws.

In this case, vendor responses and Mattel’s efforts

were mixed and uneven. In fairness, it should be

noted that Mattel’s China vendor plants did not

represent a homogeneous picture. Some of the ven-

dor facilities showed substantial progress in improving

the physical work environment at the factories. For

instance, Plants 19 and 20 had air conditioning sys-

tems installed in all production floors – a practice

seldom seen among supplier plants. Moreover, these

plants offered worker accommodations that were

better than typical worker dormitories, both in terms

of individual space and general upkeep.

At the same time, other factories continued to use

obsolete and poorly maintained equipment for water

treatment, sludge removal, and air ventilation, since

corrective action in these areas required capital

expenditures and additional staffs for maintenance and

monitoring. The plants consider these expenses as

non-essential given the low profit margins and highly

competitive markets. Mattel’s internal audit group

was invariably in agreement with ICCA’s findings

510 S. Prakash Sethi et al.

and made efforts to improve the situation. However,

Mattel was unwilling or unable to insist that these

plants make the necessary improvement as required

by China’s laws and Mattel’s GMP standards.

Overall, the second and third round of vendor

plant audits suggested a widening gap between in-

stances of non-compliance with GMP standards and

Mattel’s promises and performance to improve

compliance by the vendor plants. Finally, as a fol-

low-up to ICCA’s third round of audits, Mattel

provided ICCA in late 2008 with details as to its

proposed corrective action pertaining to the vendor

plants. The actual implementation of these actions

remains unknown to ICCA as Mattel has terminated

its independent third party external audits.

Mattel’s reluctance to discipline recalcitrant vendor

factories

Unfortunately toward the end of second round of

audits, it became apparent to ICCA that Mattel’s

enforcement of its GMP standards was losing

momentum despite clear-cut violations and repeated

promises of change. Several factories stood out in

their below-average level of management of social

issues and their inadequate response to Mattel’s

requirements for independent audit.

The case of Plant 7

One of these factories was Plant 7, which was in-

spected during the first round of China vendor plants

audit. During the initial audit, Plant 7 was found to

have significant non-compliance issues in the areas of

payment of regular and overtime wages, excessive

overtime hours, and poor record keeping with regard

to working hours and wage payments to workers.

Mattel informed ICCA that the company had decided

to discontinue its business relationship with this

vendor. However, Mattel subsequently informed

ICCA that, for business reasons, it had continued its

contractual relationship with this vendor.

As a result, ICCA continued to observe the plant’s

operations. This factory was revisited three more

times over the period of 2005–2007. During these

visits, ICCA identified a number of non-compliance

issues, involving mandatory deductions for medical

check-ups, recruitment fees, charges for uniforms

and factory IDs, discrimination at hiring for pregnant

workers. One of the most persistent issues that ICCA

brought to the attention of Mattel’s internal audit

department was the unavailability of a consistent

computerized record-keeping system. The factory

was found to have two sets of books to meet recording

standards of two major clients. Moreover, workers’

hours were recorded by line leaders. The lack of

transparency with regard to double bookkeeping and

manual record keeping was repeatedly brought to the

plant management’s attention by ICCA and was also

noted by Mattel internal audit reports over the years

of the factory’s inspection, but to no avail.

Another persistent practice in Plant 7’s operations was

related to routine work on Sundays creating a perpetual

work schedule with one rest day every 13 days (instead

of 7 days). It also became apparent during ICCA’s dis-

cussions that Plant 7’s management had no plans to

change its practices with regard to scheduling work

hours that were in excess of the maximum permissible

limit or other practices, e.g., work on rest days.

In its latest response to ICCA’s findings on Plant

7’s practices, Mattel noted that it would not ‘‘con-

tinue a relationship with a vendor that does not

demonstrate a commitment to comply with GMP.’’

However, ICCA does not have any information as

to whether or not Mattel’s business with Plant 7 has

been terminated.

The case of Plant 18

The most egregious situation occurred in Plant

18. The first audit of this facility was intended to

take place in December 2005 following informal

plant consultation. However, the audit was termi-

nated by ICCA after it became apparent that a large

number of the workers were told not to come to

work on the day of the audit. Other workers were

identified as having been coached by the manage-

ment to provide predetermined answers, which

compromised the integrity of the audit process. Both

Mattel and ICCA agreed that Plant 18 would be

given an opportunity to undertake the necessary

corrective action following which the plant would

be formally audited by ICCA.

The second formal audit took place on July

10–11, 2006. The audit found a number of non-

compliance issues in workers’ treatment and general

plant upkeep. However, during confidential one-

on-one interviews with workers it became apparent

that the management had again resorted to coaching

511Global Manufacturing Principles

the entire workforce at the plant to give similar

answers to questions that might be asked during one-

on-one confidential interview sessions to ICCA’s

audit team. The inconsistency between management

claims and workers responses posed serious concerns

about the integrity of the already quite negative

audit findings. The widespread violation of extended

overtime hours permits, deteriorating physical con-

ditions of the plant facilities and workers’ amenities

left little faith in management’s ability and intent to

make the necessary improvements in the manage-

ment style and operational policies.

Mattel was disappointed with Plant 18’s lack of

improvement and indicated that it would not pro-

vide any new business to the plant until the man-

agement adequately addressed the compliance issues

outlined by ICCA. Unfortunately, the third audit

visit of Plant 18 in 2008 did not indicate any

improvements in the plant’s management of labor

and environmental issues. The plant was found to be

one of the biggest offenders on Mattel’s GMP

standards as well as China Labor Laws. However,

ICCA did not receive a formal confirmation from

Mattel as to its action with regard to Plant 18.

Coaching of workers

The third visit of Plant 1 coincided with ICCA’s third

audit of Plant 18. Plant 1 audit was terminated due to

similar findings of workers’ being coached and cutting

the workforce more than twice on the day of the

audit. Moreover, worker survey conducted at another

facility visited at the same round of audits (Plant 11)

revealed that coaching of workers prior to audits was a

regular practice. Workers at Plant 11 stated that they

usually received cash awards for responding to the

auditors’ questionnaires with the predetermined an-

swers. While the workers at Plant 11 refrained from

giving ICCA’s team preset responses due to the

confidential nature of the survey, their acknowledg-

ment of such practices raises serious concerns about

the integrity of independent audits conducted by

various groups in China vendor plants.

Concluding remarks: lessons learned

and unlearned

In this article, we have presented a detailed descrip-

tion and discussion of Mattel’s voluntary code of

conduct, the circumstances that led to its creation; the

process by which it was implemented, and ultimately

abandoned by the company. The authors of the article

were intimately involved in almost every aspect of the

code creation and implementation throughout its

entire life cycle of approximately 9 years.

This case study has offered us an invaluable

opportunity to examine the dynamic nature of changes

within the company and how they impact and are

impacted by the changes in the company’s external

competitive and socio-political environment. Mattel’s

GMP was a highly innovative and one-of-its-kind

initiative. In this sense, it became a live laboratory,

however, imperfect, to examine various aspects of the

viability of a voluntary code of conduct by companies

and industry groups. To the extent that it provides a

meaningful mechanism toward self-regulation that

would be flexible and adaptable to changing economic

and socio-political circumstances, it could also help to

narrow, if not completely eliminate, the gap between

societal expectations and corporate performance.

Ideally, it would have been desirable to examine

similar cases of voluntary codes of conduct and follow

them through the process of code creation and

implementation over a certain length of time.

Unfortunately, this has proved to be impossible. An

extensive search of literature by the authors has failed

to discover any instances of publicly reported volun-

tary codes of conduct. Notwithstanding the paucity of

other comparable case studies, we believe our obser-

vations may suggest potential pathways, which com-

panies and industries could put to good use in creating

and implementing voluntary codes of conduct.

Our analysis in this section has been divided into

four categories:

1. Corporate responses to external crises;

2. Importance of ethical norms, corporate cul-

ture, and institutional memory;

3. Operational aspects of implementing GMP;

and

4. Corporate responses to competition, regula-

tory environment, and reputational risk.

Corporate response to external crisis

Why is it that companies in a given industry, when

confronted with an external crisis, respond differ-

ently to similar situations? Our analysis in this

512 S. Prakash Sethi et al.

instance, and in a number of others examined by this

author (Sethi and Williams, 2000), indicates that a

large part of the differences can be traced, first, to the

character and vision of the company’s CEO and its

top management. The innovative and potentially

risky challenge of launching Mattel’s GMP was the

responsibility of Mattel’s then CEO, Ms. Jill Barad.

From all accounts, she was a highly focused and

determined executive who would force the organi-

zation in a preferred direction by sheer force of

personality. She spent a major part of her career as a

marketing executive, and was very sensitive to

public perceptions and risk to corporate reputation.

In addition, she had the confidence and support

of Mattel’s board, which included a member of

Mattel’s founding family.

Ms. Barad saw the crisis in terms of public

perception and reputational risk that would need a

bold response to gain public confidence. In this

assessment, she was quite right. Despite some

skepticism, the GMP initiative received positive

coverage in the news media and supportive com-

ments from Mattel’s critics and the NGO com-

munity concerned about sweatshops and human

rights abuses. Therefore, from the very start, the

top management was committed to the creation of

GMP. While there were extensive discussions and

differences of opinion, they focused on making the

code work.

No sooner had the code been put into practice,

there was a change in the top management. Ms. Barad’s

successor at Mattel was Mr. Robert A. Eckert, who also

came with a background in marketing having previ-

ously served as the CEO of Kraft Foods, Inc. (Hays,

2000). The new CEO and his top management team

found good reasons to be supportive of the GMP ini-

tiative. He offered strong endorsement based on his

belief that companies must demonstrate responsible

social conduct to legitimize the right of self-regulation.

As we stated in an earlier part of this article, he further

reiterated his belief in a speech at a United Nations

conference (ICCA, 2007), and in comments to a

reporter from the New York Times (Dee, 2007).

Corporate culture and ethical norms

Corporate culture, i.e., a company’s institutional

values and traditions, provide the glue that binds

companies’ various internal constituencies into a

cohesive community. It also serves as a filtering

mechanism through which the company views its

external environment. Without a supportive cor-

porate culture (internal) and corporate reputation

(external), the CEO and its top management team

are likely to meet strong resistance from within and

without when trying to impose discrete and sub-

stantive changes in corporate strategy and conduct.

Similarly, a CEO who is not in synch with corporate

culture and prevailing societal expectations, is un-

likely to maximize the value of these resources. It

will be difficult to create a viable strategy that the

company’s managers and employees will enthusias-

tically implement, and the company’s stakeholders

will accept. 6

From our observations, and working with exec-

utives at various levels of the Mattel organization, we

could not ascertain a discernible corporate culture

that was unique and distinctive from the corporate

culture prevailing among most large corporations,

and more notably, large MNCs. In part, this may

have been due to Mattel’s turbulent corporate his-

tory where the company went through severe

financial and strategic missteps that brought it to the

brink of financial collapse. The latest change in

corporate leadership at Mattel appears to be symp-

tomatic of this trend. This culture can best be de-

scribed as insular, focused on internal efficiencies,

and where most other constituencies are viewed in

transactional terms and bargaining leverage deter-

mines their relative value to the corporation.

From our perspective, the contemporary Mattel,

Inc., is a company driven by economic and market

considerations. Its business practices, apart from

GMP, are no different from most other companies

in the toy industry. When it comes to corporate

social responsibility (CSR) and good corporate

citizenship, the company uses it as a thin patina to

wrap around its ‘‘business as usual’’ modus ope-

randi. The primary intent of the GMP was to

embed CSR and make it an integral part of cor-

porate strategy and operations. This would trans-

form the notion of CSR to corporate social

accountability. It would imply that GMP-related

activities would not be viewed as a reflection of

good corporate citizenship, but as an integral part

of managing reputational risk and maintaining a

sustainable business model.

513Global Manufacturing Principles

Operational aspects of implementing Global

Manufacturing Principles

The initial response of Mattel’s management to

ICCA’s audit findings was prompt and unambigu-

ous. ICCA was encouraged to communicate directly

with Mattel’s top management. The president of

ICCA was invited to speak at Mattel’s Annual

Shareholders meeting. At the operational level,

Mattel’s social audit department provided timely and

systematic response to ICCA’s findings, supervised

corrective action at Mattel-owned and operated

plants as well as vendor plants. Even more important,

Mattel’s top management supported ICCA by

requiring major changes in its factories in Mexico

and China.

Field operations received two types of signals as to

top management’s expectations with regard to GMP

compliance. The first set consisted of formal com-

munications that outlined lines of authority and

responsibility for GMP compliance. These were

reinforced through the regular meetings between

top management and senior managers from the field.

Equally important were the signals that were sent by

top management’s actions such as the rehabilitation

of factories in Mexico and China.

The progress in GMP compliance during the first

4 years was impressive and universal. Under the cir-

cumstances, it would be logical to assume that top

management expectations with regard to GMP would

be integrated in business operations, management

performance, and compensation. Unfortunately, in

reality this expectation was not fully realized, and it set

in motion a gradual erosion in Mattel’s commitment

to GMP principles and practices.

(a) From the outset, Mattel had excluded its

licensee operations from ICCA Audits.

Financial analysts estimate that Mattel derives

almost 50% of its total revenue from licens-

ing operations. The exclusion of this activity

would thereby significantly impact the com-

pany’s overall attitude toward GMP. It will

make licensing operations more profitable

and less subject to public scrutiny when

compared with revenues from Mattel’s own

manufacturing and procurement operations.

(b) A similar situation existed between the

company-owned and operated plants and

the vendor-owned plants. Managers of Mat-

tel-owned plants often complained about

Mattel’s double standard whereby vendor

plants were held to a lower standard of

GMP compliance, which put Mattel’s own

plants at a competitive disadvantage when

making similar products.

(c) Among the vendor plants, ICCA also re-

ceived comments that Mattel does not nec-

essarily reward vendors having a higher level

of GMP compliance with either bigger or-

ders or higher prices to compensate for their

GMP compliance costs.

(d) As we have noted in earlier parts of this

article, notwithstanding Mattel’s formal

commitments and assertions, the company

was quite reluctant to discontinue its

business relationships with vendors that were

charged with repeated violations of GMP

standards.

(e) With regard to social audits and Mattel’s

GMP compliance efforts, the company’s orga-

nizational structure and operational proce-

dures created conflicting goals. The field level

auditors, especially in China, had a direct line

reporting to the area level managers who were

also responsible for timely and cost effective

procurement of toys.

(f) ICCA’s continuous interaction with Mattel’s

field operators suggested that area managers

were happy to ensure GMP compliance

where such compliance was easily accom-

plished, did not elicit resistance from the

vendors, and would not disrupt the flow of

products. This had the effect of many vendor

plant managers and even Mattel’s own plant

manger to downgrade, if not ignore, recom-

mendations of Mattel’s own social compli-

ance auditors.

(g) ICCA found Mattel’s social compliance

auditors in the field to be highly experienced

and dedicated to the task of improving

GMP compliance, and where appropriate,

helping vendor plant managers with advice

and training. This was especially true in the

case of China where conditions for improv-

ing GMP compliance were difficult and

challenging. Nevertheless, Mattel’s China-

based social audit group frequently lost its

514 S. Prakash Sethi et al.

most experienced people because of the less

rewarding work environment at Mattel and

more remunerative career opportunities else-

where.

(h) The situation with regard to the social audit

group at Mattel’s headquarters was equally

uncertain. Over the 9-year time span, ICCA

noticed a high rate of turnover among its

professional technical staff. The reasons for

such turnover were also apparent and pre-

dictable. From ICCA’s perspective, these

professionals appeared not to be confident

of the company’s total commitment to

GMP and thus found their work somewhat

marginalized leading to poor job satisfaction,

lower financial rewards, and fewer opportu-

nities for upward mobility.

Corporate response to external forces

Mattel’s initial response to external challenges was

bold and unequivocal and it achieved its desired

result. However, maintaining that response required

that Mattel must make a long-term commitment to

GMP with its conditions of complete transparency,

third party external monitoring, and compliance

verification. It was hoped that this approach would

engender strong public support and pressure the rest

of the toy industry to follow suit.

Unfortunately, this did not happen. Public and

NGO campaigns against sweatshops were short-

lived and could not be sustained without consumer

support in the marketplace. While at the corporate

level, the cost of GMP compliance, i.e., improving

conditions in the factories to comply with Mattel’s

standards, was not materially significant when mea-

sured as a proportion of total production costs or

sales prices. However, these costs were significant at

the procurement level compared to the company’s

competitors. Consequently, Mattel’s field managers

felt pressured to minimize and delay compliance to

contain costs. From ICCA’s perspective, this wid-

ened the gap between Mattel’s GMP promise and

actual compliance and brought further pressure on

Mattel. Under the circumstances, Mattel chose to

discard its GMP compliance based on cost–benefit

analysis. It did not see any material or reputational

benefit by adhering to its GMP. Instead, it opted for

the industry-wide voluntary code of conduct called

ICTI Care, which provided no third party, inde-

pendent external monitoring. Nor did it call for

public disclosure of audit findings.

Notes

1 Mattel could legitimately argue that it had not aban-

doned its code of conduct, i.e., GMP, and continues to

implement it. However, as we shall discuss in the arti-

cle, Mattel terminated two of the main principals that

made its code unique and different from other individ-

ual company or industry-wide codes. These were: (a)

an independent third party external monitoring of Mat-

tel’s compliance with its code; and, full public disclo-

sure of audit findings (including deficiencies found by

the auditors and corrective action taken by the com-

pany). These principals were also the prime reason,

which impelled Mattel to stay and of the industry-wide

voluntary code called ICTI Care. At the time, Mattel

discontinued its external monitoring system; it joined

the toy industry’s ICTI Care program. This program

professes to carry out independent audits. However, it

does not provide any details as to how these audits are

carried out, so that one might assess the quality and

independent character of these audits. Second, the find-

ings of these audits are not publicly disclosed. 2

Comments made by Robert A. Eckert, chairman

and CEO, Mattel, Inc., to MIMCO members at a

meeting at Mattel headquarters in El Segundo, Califor-

nia, on October 4, 2000. 3

All audit reports cited in this article are available on

Mattel and ICCA’s websites: http://www.sicca-ca.org/

reports.php. 4

MDC has been an exception to this separation of

responsibility and authority; Mattel has exercised full

control over the entire plant regardless of the legal part-

nership structure. 5

For the purposes of this discussion, even though the

first formal audit of the MDC facility took place fol-

lowing its opening in 2000, its findings are reported as a

part of the first round of audits in 1999. 6

This situation was dramatically stated in the case of

Nestle and the Infant formula boycott controversy.

During the early stages of the controversy, the decen-

tralized organization proved ineffective in responding to

public pressure because the source of the problem was

in one region while the source of public pressure was in

another part of the world. Thus, the problems of turf,

budgetary constraints, and the differing management

515Global Manufacturing Principles

style and operational tactics in the two regions contrib-

uted to an exacerbation of the problem. Consequently,

the top management of Nestle in Switzerland took con-

trol of the problems, and installed a separate management

team in Washington, D.C. which would report directly

to the Nestlé’s top management and bypass the authority

of the area manager in the United States as well as the

managers responsible for the worldwide marketing of in-

fant formula products. This turned out to be a most

innovative and effective approach. Within 4 years, the

new organization not only resolved the issues but caused

a 180� turn around in Nestlé’s reputation from a highly negative to a substantively positive level.

The ad hoc organization, however, could not be inte-

grated into the Nestlé’s existing global organization and

decision-making structures. Soon after the issue was re-

solved, the new organization was dissolved and all

authority to manage infant formula marketing reverted to

the regular managers. Once in power, these managers

undertook to erase all credit for resolving the issue from

the new ad hoc organization. Instead, Nestle commis-

sioned a journalist to write a book for general public dis-

tribution at Nestlé’s expense. This book rewrote the

history of the infant formula controversy as Nestlé’s

executives wanted the world to see. It placed all the

blame of the controversy on the Nestlé’s critics and pro-

jected Nestle as the hapless victim of NGOs less than

ethical conduct and spreading of inaccurate and mislead-

ing information. It also largely credited the Nestlé’s sea-

soned managers for successfully handling the issue with

only a minor role assigned to the ad hoc organization. See

Sethi (1994) and Sethi and Bhalla (1993).

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S. Prakash Sethi, Emre A. Veral, H. Jack Shapiro

and Olga Emelianova

Department of Management, Baruch College,

City University of New York,

One Bernard Baruch Way, Box J-1034, New York,

NY 10010, U.S.A.

E-mail: [email protected];

[email protected];

[email protected];

[email protected]

517Global Manufacturing Principles

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