Interim chancellor’s memo to the Labor Licensing Policy Committee

Below is a memo from Interim Chancellor David Ward to the Labor Licensing Policy Committee in response to a new statement from adidas on the PT Kizone factory situation:

LETTER FROM CHANCELLOR WARD TO LLPC

February 3, 2012

TO: Labor Licensing Policy Committee

FROM: David Ward, Chancellor

I would like to address recent developments related to the letter regarding the resolution unanimously passed by the Labor Licensing Policy Committee, which advised me to initiate termination of both our sponsorship and licensing agreements with adidas Group.  You recommended this action in response to adidas’ failure to remediate what you perceive to be material breaches in the Labor Code of Conduct. 

In response to your resolution, I requested a detailed report from the Worker Rights Consortium (WRC) providing findings and recommendations pertaining to the closure of the PT Kizone factory in Indonesia and adidas’ response thereto.  The WRC report was received on January 18, 2012.  I commend the WRC for putting forth a comprehensive report that informs this discussion.  The WRC report was subsequently shared with legal counsel for adidas.  Adidas was asked to respond to the report by February 2^nd. 

Thursday evening I received the adidas response.  Upon initial reading, my feeling is that it does not address the concerns that the committee has articulated and that I share regarding the failure to contribute financially to severance payments to displaced workers.

Early next week, I plan to discuss this matter with the university’s lawyers, business officials, Athletic Department administration, the University Committee, the president of the Board of  Regents and others to make certain that I have consulted with all interested parties and relevant governance groups who advise under such circumstances.  However, I will share some of my thinking and reactions to the adidas response below. 

There is a clear dispute between the university and adidas about the terms of the agreements and the Code of Conduct that is incorporated into each.  The university’s position is based on the findings contained in the WRC report.  In that report, the WRC found support for the proposition that adidas is financially responsible for the acts of its subcontractors and manufacturers.  Adidas counters in its response that it is not obligated by the terms of the agreements or the Code of Conduct to “stand in the shoes” of a disreputable factory owner and assume financial responsibility for severance payments that are owed to the factory workers.  As you know, the Code of Conduct is incorporated into both the sponsorship agreement and the licensing agreement. 

I must add that in keeping with past practice the university does not move presumptively toward termination of contracts for breaches of material conditions.  In each case, the emphasis is on working with the contractual partner to “cure” the identified failures in performance, assuming that (1) the specified failures have occurred, and (2) they demonstrably constitute violations of stated contractual obligations.  This approach has been true of every other licensee with which we have identified concerns relating to our Code of Conduct, and is the standard by which all university contracts are administered.  Providing notice and opportunity to cure a claimed breach as well as following contractual provisions for mediation in the event of a dispute are consistent with this principle.

The university’s goal in this matter is to see the workers of PT Kizone made whole. However, we do not ignore the positive and productive relationship we have had with adidas to date, nor can we ignore our fiduciary responsibilities to avoid costly litigation.

Nevertheless, I am prepared to pursue my serious concerns about what has happened at PT Kizone directly to the senior management of adidas.  Throughout this process I expect to continue to engage adidas in an effort to encourage remediation of the severance pay issue and to encourage adidas to take more corporate responsibility for the PT Kizone situation.   

After appropriate and speedy consultation, I am inclined to give notice to adidas that we believe it is in material breach of the terms of the Code of Conduct.  I am committed to providing you and others with an update next week. It is my continued hope that adidas will take meaningful steps to do its share as other entities have done previously in an attempt to make the workers of PT Kizone whole.

The university selected adidas as a licensee, and as a sponsorship partner, in part due to the company’s serious institutional philosophy on labor rights issues in the industry.  I look forward to working with you as we continue to evaluate the university’s concerns with adidas.