Two and a half years ago on April 24th, 2013 an eight-story building housing five garment manufacturers collapsed in Dhaka, Bangladesh killing 1,129 people and injuring 2,515 more. The building’s top floors had been constructed without permits and to cut costs it was built using too little rebar (reinforcing steel) to ensure the structural integrity of the building. Building collapses like this one are not new to Bangladesh. For example, in 2005 a building housing two garment manufacturers collapsed due to being built illegally on marshland (Clean Clothes Campaign, 2005). This collapse killed only 64 people because it occurred during a night shift after most employees had gone home.
These collapses were a result of a combination of political and economic factors. First, Bangladesh is a highly corrupt country – it was ranked by Transparency International as the 39th most corrupt country in 2013 (out of the 177 countries surveyed). Corrupt practices such as bribery encourage speedy, cheap, and illegal construction practices. Second, the rapid growth of the Bangladeshi garment industry led to pressure for managers to expand their factories quickly. Finally, Dhaka is one of the most densely populated cities in the world with over 115,000 people per square mile. For reference, the densest borough in New York City, Manhattan, has approximately 69,000 people per square mile.1 Thus, garment manufacturers are financially incentivized to construct taller buildings, instead of shorter buildings that are safer.
The Reputation Commons Problem
Twenty three global apparel brands were eventually linked to one of the five garment factories in the Rana Plaza building, either because they were sourcing from those factories directly or because their suppliers were sub-contracting to them (Clean Clothes Campaign, 2014). However, this particular catastrophe created sustained attention from the public and the media to a wider set of problems associated with labor conditions in the readymade garment industry. This led to a back lash against many companies in the apparel industry – not just those associated with the Rana Plaza complex.
This type of event in which the careless actions of a few companies have negative repercussions for many other companies within that same industry has been referred to as a “reputation commons problem” (Barnett, 2006; King, Lenox, and Barnett, 2002). This is similar to the “tragedy of the commons” problem. In the classic commons example, shepherds are left to individually decide how much to graze their sheep on common pastureland. If shepherds make this decision based on only their benefits, they will graze too many sheep too often leading to overgrazing and destruction of the shared resources.
In the case of the reputation commons problem, the common resource is the shared industry reputation. In this scenario, companies act opportunistically and take actions that benefit them (e.g., sourcing from low cost, yet high risk suppliers), but these practices can lead to negative events (e.g., the collapse) that have drastic consequences for the entire industry.
A strong argument can be made that the Rana collapse significantly sullied the reputation of the apparel industry; especially in the area of ‘fast fashion.’ The collapse spurred reports from NGOs on labor conditions at garment manufacturers producing for large, global brands, such as H&M, The Gap, and Wal-Mart.2 In addition to the swift and harsh criticisms fueled by social media and the internet, activists also targeted specific companies for demonstrations and boycotts after the collapse. For example, protestors demonstrated outside of Primark’s headquarters after it was discovered that Primark suppliers had subcontracted to a factory in Rana Plaza. At the same time, the activist group Avaaz also created an ad pairing a photo of the CEO of Hennes and Mauritz (H&M) next to a photo of a victim of the collapse with the caption “Karl-Johan, enough fashion victims?” The fact that this occurred despite H&M never having been linked to Rana Plaza, is a clear demonstration of the “Reputational Commons Problem”.
This post is based off of a working paper by Susan Kayser (Kayser, 2015) and will be a 3-part series. The next post will delve into what companies have been doing (or not doing) in the 2 ½ years after the collapse.
1 Urban density numbers for Dhaka can be found here: http://www.newgeography.com/content/003004-evolving-urban-form-dhaka. Urban density numbers for New York City counties can be found here: https://www.census.gov/prod/cen2010/cph-2-34.pdf. Last accessed December, 2015.
2 The War on Want report “Never Again: Making Fashion’s Factories Safe” can be found here: http://www.waronwant.org/sites/default/files/never%20again%20-%20making%20fashions%20factories%20safe.pdf. The SOMO report “Fact Sheet” can be found here: http://somo.nl/publications-en/Publication_3979/?searchterm=rana. Last accessed October, 2015.
Barnett, ML. 2006. Finding a working balance between competitive and communal strategy. Journal of Management Studies, 43: 1753–1773.
Barnett ML, Hoffman AJ. 2008. Beyond corporate reputation: Managing reputational interdependence. Corporate Reputation Review, 11(1), 1150-1170.
Barnett ML, King AA. 2008. Good fences make good neighbors: A longitudinal analysis of an industry self-regulatory institution. Academy of Management Journal, 51(6), 1150-1170.
Clean Clothes Campaign. 2005. Factory collapsed – Bangladeshi Garment Workers Buried Alive. April 1. Accessed December 2015, http://www.cleanclothes.org/news/2005/04/01/factory-collapsed-bangladeshi-garment-workers-buried-alive.
Clean Clothes Campaign. 2014. Update: Brands’ responses to Tazreen and Rana Plaza compensation demands. July 24. Accessed October 2014, http://www.cleanclothes.org/news/2013/05/24/background-rana-plaza-tazreen.
Kayser, SA. The Cost of Corporate Social Responsibility after a Catastrophe. Ross School of Business Paper No. 1261. Available at SSRN: http://ssrn.com/abstract=2543011 or http://dx.doi.org/10.2139/ssrn.254301