Can Levi’s Make Life Better for Garment Workers?

It’s 11 a.m. on a Tuesday, and a section of Linea 1 has left their stations to form a ring on the factory floor. As their supervisor stands in the center, the workers toss a ball of blue yarn back and forth across the circle, each holding on to a segment of string to create an elaborate cat’s cradle. As they pass the ball, they take turns making promises, telling each other the things they plan to say and do later. One says she’ll spend more time with her family. Another says he’ll speak up when he feels he’s been treated unfairly.

It may take a moment to recognize the ritual: It’s a team-building exercise, the stuff of many a corporate retreat. This team, however, is distinctly uncorporate. These are apparel workers, some of the low-wage workhorses who power the global garment industry. Their voices are nearly drowned out by the thrum of sewing machines as others around them furiously cut, sew, and assemble Levi’s five-pocket denim pants. Still, as they share the string, some are laughing; almost everyone looks genuinely happy.

You’re looking at one, tiny piece of jeans giant Levi Strauss’s (Change the World 2017 list, No. 11) ambitious experiment to improve the lives of the 25 million men and women in the world’s apparel supply chain—and better its business results in the process. The players from Linea 1 are finishing a 10-week course designed to teach them about health, hygiene, and sanitation, as well as communication and critical thinking. The string game? That’s intended to make everyone feel personally invested in and accountable for acting on what they’ve learned. The cat’s cradle is a web of commitments, representing their new connectedness—a physical reminder that their bonds are stronger, surer than before.

The Levi’s initiative—“Improving Worker Well-Being,” officially—is about getting an industry to recognize that workers aren’t faceless cogs in giant profit machines, but people with feelings and needs. “This is about creating a culture that embraces well-being,” says Kim Almeida, who heads the program. “It’s a mindset shift.”

That may sound squishy, but Levi’s efforts, and the business case for them, all become clearer when you zoom in on one of the vendors that are on board. (Those 42 vendors encompass 72 factories and 140,000 workers, almost half of the Levi Strauss supply network.) The goal is to build a network of more productive, better-run factories—with happier, healthier employees and lower rates of costly absenteeism and turnover. That would be good for suppliers, but also for Levi’s, which will get more reliable, cost-efficient sourcing partners—while generating positive vibes that resonate with young talent and with consumers who want their values reflected in everything they buy.

Take this factory in Mexico, a cut-and-sew facility employing 1,200 people in a dusty, desolate town called Nazareno. Ten weeks after team-building activities began there, workers, line supervisors, and managers speak of a workforce transformed. The reason is simple, but powerful: Before, workers were afraid to speak. Communication was a one-sided exchange, and generally, it involved yelling. Workers didn’t particularly like to come to work. “We had lots of people complaining their supervisors didn’t have the right leadership style—they were too strong, too blunt, they didn’t treat them well,” says Oscar González Franch, the president of Apparel International (AI), the longtime Levi’s vendor that operates the factory.

The peer-led sessions at the facility are organized by a Mexican NGO, Yo Quiero Yo Puedo (“I Want and I Can”). Once the group started training supervisors and got them leading the daily exercises at AI, things changed; supervisors began relating to the people they’d been barking orders at. González Franch says supervisors have gotten better at speaking to groups and doing it with respect. (Workers and supervisors told Fortune the same.) “We’re teaching them to be better leaders.”

Though González Franch doesn’t yet have hard data, he sees a difference—not only in the ways his employees relate to each other, but in productivity. He suspects absenteeism is down, and he’s optimistic he might have the formula to reduce the plant’s stubbornly high 30% to 40% annual turnover rate. He expects these benefits are translating to his bottom line as well. “It’s a win-win situation, believe me,” he says.

González Franch’s aha moment is the sort Levi’s was hoping for in 2015, when it decided to make a commitment to worker well-being a condition of doing business for every key partner in its supply chain. It’s a move that’s all the bolder because the company is asking every supplier to design its own game plan—to recognize their own workforce’s needs and address them however they see fit. Levi’s offers some funding and guidance, but what it really wants is to see suppliers like AI take the idea of Worker Well-Being and run with it.

It wouldn’t be the first time Levi’s shook things up. Sustainability has been part of its fabric since its founding in 1853, as have the progressive values that came to typify San Francisco, the city it calls home. Privately held and family-owned, Levi’s was one of the first companies to desegregate factories, to embrace same-sex marriage, and to educate employees about HIV/AIDS. For years, it has worked to reduce its environmental pant-print, pioneering ways to wring water and chemicals from the jeans-making process.

But if there’s a pin Levi Strauss wears most proudly, it’s probably the one for its standard-setting role in the garment industry. The company began moving production abroad in the early 1990s, around the same time that brutal conditions in overseas sweatshops started making headlines (Levi’s figured in some of them, due to a scandal in Saipan). This prompted the company to create a code of conduct for all its suppliers; wherever they were in the world, they would rise above weak labor laws.

Known internally as Levi’s “Terms of Engagement” (TOE), the document stipulated everything from the minimum age of employees to the placement of fire exits. It was quickly emulated across the apparel business, establishing a baseline of expectations for factories and the brands they did business with. It’s now unthinkable that any company—let alone giant brands with now-robust compliance programs like Nike (NKE, +1.60%)Gap (GPS, +1.15%), and Adidas—wouldn’t have a code of conduct for their manufacturers.

Improvement on the fly: Keny Yair Favela cuts buttonholes in jeans at the Nazareno plant. Under Worker Well-Being, management has been quick to upgrade the factory campus with a soccer field, an ATM, and better fans. Photograph by Livia Corona for Fortune 

This was progress, but hardly a solution. Despite frequent inspections and the armies of auditors enlisted in this cause, labor abuses and poor working conditions have continued to stain the fashion industry. And wages, depressed by global competition and consumers’ addiction to cheap togs, remain stubbornly low.

As the 20th anniversary of the TOE approached, some at Levi Strauss wondered if there was more they could do. They saw promise in another internal program. Over the years, the Levi Strauss Foundation had funded “worker empowerment” programming in apparel factories. They’d seen especially good results with programs that focused on life skills and health. Participating factories had registered positive outcomes for workers, who enjoyed improved quality of life, and their businesses—which tallied declines in absenteeism and increased productivity. One facility in Egypt reported a 4-to-1 return on investment, largely because women, who typically stayed at home when they were menstruating, had access to education and sanitary pads.

Still, all of these programs had been temporary, lasting 12 to 18 months at most. Making them a sustainable part of factory life seemed like Levi’s best next move. The company had just begun piloting Worker Well-Being when Chip Bergh came to Levi’s as CEO in 2011.

Bergh faced big business challenges: The brand had experienced a precipitous revenue decline and muddled through the aughts, and many speculated the venerable company, having lost its way in the age of designer denim, might never come back in style. But Bergh, a Procter & Gamble (PG, +1.10%) alum, had also been drawn to the company for its purpose-driven ethos. “The company had such an amazing legacy … of not being afraid to stick its neck out on important social issues,” says Bergh. He fully supported the well-being initiative: If anything, he thought the company needed to think bigger. “If this is going to be sustainable over time,” he recalls thinking, “we have to prove to the factory owners that this is good for their business so they fund it on their own.”

Jaime Sergio Ivan Lopez and fellow workers in Apparel International’s Torreón factory distress Levi’s jeans by manually giving them “whiskers.” The jeans hanging from the line at each station serve as models for the workers to replicate. Photograph by Livia Corona for Fortune 

For the next couple of years, the company took its lumps. Compared with the prescriptive, black-and-white world of compliance, Worker Well-Being was broadly defined and open-ended. Levi’s struggled to figure out the right level of engagement in the process—how much to guide its vendors, how much to give. It became apparent that it had overdone the former. “We learned we couldn’t come in with a paternalistic approach,” says Kim Almeida. “We needed to step back and listen to vendors.” Then there was the question of measurement: How the heck do you know what’s working?

Still, early signs of progress appeared in pilots in far-flung locations—Egypt, Cambodia, and Haiti among others. That convinced Bergh, as well as his supply chain chief Liz O’Neill, that the initiative should be rolled out to all key Levi’s vendors, and made mandatory beginning in 2020.

Though that would be a huge task, Levi’s had organized itself in a way that would improve its chances of success. Years earlier, Levi’s had embedded its sustainability team in the supply chain, putting everyone on the same team. In other words, the person who is asking a factory to deliver 5,000 orders tomorrow is the same person who has asked them to do it using 50% less water. Now, the team responsible for workers’ well-being is similarly embedded. “That’s the virtue of our structure—all those teams are pulling in the same direction,” says O’Neill.

When it launched the initiative, Apparel International was one of the first suppliers Levi’s called. AI was founded in 1988, a company with 20 seamstresses. Back then, because of U.S trade regulations, only the sewing of jeans could happen in Mexico—the garments were typically cut and finished in El Paso, Texas. That all changed with the North American Free Trade Agreement, when much of the industry, chasing lower wages, moved south. Within a few years, Torreón, the city of 1 million where AI is based, was producing 5 million pairs of pants per week. For a time, Torreón was described as the “blue jeans capital of the world.” The boom times didn’t last. Many companies, chasing cheaper labor still, moved to Asia, and AI, which once made jeans for a host of brands including Gap, now works only for Levi Strauss.

Nazareno is just over the mountains and across a state line from Torreón, a 45-minute drive that in its final stretches turns to rutted unpaved roads that require a certain amount of negotiation with stray dogs, pedestrians, and large trucks. AI owns the only factory there, in a town of 8,000 that lacks, among other things, a hospital, an ambulance, and a bank. There’s a railroad track, but no station; once a day, La Bestia, a freight train known for carrying U.S.-bound migrants north, blows through.

Converts at the top: Apparel International president Oscar González Franch (left) and CEO Tomas Bello Garza. González Franch believes Worker Well-Being is helping the firm’s bottom line: “It’s a win-win situation, believe me.” Photograph by Livia Corona for Fortune

González Franch has run AI alongside CEO Tomas Bello Garza for almost 30 years, and by their own admission the broader well-being of their 4,000 employees wasn’t something they’d spent a lot of time thinking about. But as O’Neill and Almeida presented the idea, it resonated with them. Among Levi’s suppliers, AI was known for its ingenuity on the environmental front—they’d found new ways to save water, and made a whole collection of jeans sans chemicals—why not innovate on the people side as well?

Still, the duo weren’t sure how to tackle the broad mandate they’d been given. Levi’s had provided them a “needs survey” to get started, but after circulating it in Nazareno, González Franch and Bello Garza realized it presumed a level of development (like access to financial services and health care) that didn’t exist in the community. Almeida saw them struggling and sent in Community Empowerment Solutions, an NGO, to help. “That was the turning point,” says González Franch. AI did a second survey, this one better suited to the Nazareno population. They focused on new workforce improvements, and interviewed more than a dozen local NGOs to help with in-factory training sessions.

Today, the peer-led programming in health and communications—the yarn-toss curriculum—is just one aspect of what’s happening in Nazareno. Management has added to the factory campus a breastfeeding room, a soccer field, an ATM (the only one in town), and a sun-protected shed to store motorbikes. They’ve installed microwaves and griddles in the cafeteria and facial recognition tech to check workers in for duty (that may sound creepy, but it frees them from losing pay to the whims or forgetfulness of supervisors).

By far the most popular improvements have been basic ones: cooler water (new water fountains), cooler air (new overhead fans), and kinder, more communicative supervisors. What’s remarkable is that management added almost all these touches in response to employee feedback—a dynamic that would have been unthinkable not long ago.

Workers at Apparel International’s Nazareno factory enjoy lunch. The Levi’s vendor added food options and spiffed up its cafeteria as part of its Worker Well-Being initiative. By far the most popular improvements at the facility have been basic ones: new water fountains, new overhead fans, and kinder, more communicative supervisors. Photograph by Livia Corona for Fortune 

Worker Well-Being has also prompted AI to invest in the town of Nazareno itself. “We didn’t see the community getting up to speed as we thought it would,” says Bello Garza, who like González Franch has become a Worker Well-Being evangelist. Now, the duo swell with pride when they show off the work AI has done beyond its factory walls. When I visited in late August, we stopped by the city’s only health clinic, a small concrete building in the center of town. Until recently, the state-run center saw only five people a day; people seeking care would line up at five in the morning. AI provided the center an administrator, and a computer for record-keeping; they set up an appointment line and posted its phone number around town. The doctor now sees 20 scheduled patients and eight walk-ins per day.

AI also developed a financial model to sustain its well-being programs—a foundation that generates income by turning Levi’s fabric scraps into goods that are sold locally. As we pass by a community center where a sewing class is learning to make those goods, and a playground that the company refurbished, González Franch says AI is just getting started. An ambulance is next, and a day-care center. The company will soon roll out Worker Well-Being to its remaining factories. He ticks through the many projects on his Worker Well-Being wish list—which is to say, his wish list for his workers.

It’s intuitive that happier employees will be more productive employees. What’s less clear is what makes them happier: A supportive manager? Free snacks? More autonomy? Or the thorniest option of all: higher wages?

That’s a question that Levi’s has more or less assigned to its vendors, sidestepping the elephant-in-the-room issue confronting apparel companies—just how much people in their supply chain are getting paid. Low wages are a brutal reality in an industry in which every innovation seems to drive down prices more efficiently than the last. The minimum wage for garment workers in Mexico is $5 a day, a rate that makes tortilla griddles in the cafeteria look a little less generous. If you really want to improve workers’ lives, why not just pay them more? Levi’s and AI say that their workers make more than the minimum, plus fringe benefits, and that higher wages didn’t top the list of priorities in employee surveys; Levi’s adds that health, financial inclusion, harassment, and discrimination tend to rank higher.

From that perspective Worker Well-Being is a step forward. AI may be the current exemplar for what Levi’s hopes to achieve—a shift in the way the industry thinks about its workers and acknowledges their needs. Says Almeida, “Worker Well-Being is less a program than a journey. You start working in a different way when you realize the value of serving workers.” Still, Almeida is full of caveats—Levi’s is early in its journey. To help determine whether it will result in a real improvement in the lives of garment workers or in business results, Levi’s has enlisted Harvard’s School of Public Health to rigorously measure and study the initiative.

A leg up on the competitors: Workers “distress” jeans in a plant in Torreón, Mexico. Levi’s hopes that its Worker Well-Being program will boost its bottom line by reducing vendors’ absenteeism and turnover. Photograph by Livia Corona for Fortune 

Levi’s feels good about what it has seen so far. The company has achieved four years of top and bottom line growth, excluding foreign-currency impacts. The fact that its rollout has coincided with this period would seem to suggest, at the very least, that the initiative hasn’t hurt, and that Levi’s can keep implementing it from a position of strength.

Beyond any workforce productivity tailwinds, the company says, Worker Well-Being has deepened its relationships with suppliers. And there are always the public-relations benefits: Millennials love this stuff. Chip Bergh hopes the rest of the industry will, again, follow Levi’s lead. (As with all the sustainability work it does, Levi’s is open-sourcing its processes and lessons learned.) “This goes way beyond making a profit,” says Bergh. “We are demonstrating there is an opportunity for companies to redefine their role in society, and that’s good for business.”

 

 

CULTURELiz BacelarLevi's