A new compass

In spring 1994, a Swedish documentary revealed that child labour was common practice in the rug industry in Pakistan, where IKEA had production. Many of the children were debt slaves, sometimes along with their whole family. The scandal was a reality, and the recently recruited business area manager for rugs, Marianne Barner, acted swiftly. Contracts with Pakistani rug manufacturers were terminated and other supplier agreements had a clause added that prohibited child labour.

“The film was a real eye-opener,” Marianne remembers. “The UN Convention on the Rights of the Child had come along in 1989, but child labour was still unknown to a lot of people. I myself had spent a couple of months in India for some supply chain training, but child labour was never mentioned. Our buyers met suppliers at offices in the cities and rarely visited the actual production sites,” she says.

Not the first time

IKEA had been the subject of an earlier scandal, in 1992. Investigative reporters at German magazine Stern found high levels of formaldehyde in the white lacquer on the company’s best-selling BILLY bookcases. In the shadow of scandalous headlines about “deadly bookcases”, IKEA halted all production and sales until the problem was resolved. Added costs and a damaged reputation made the company think along new lines regarding its environmental work, and start working alongside organisations like Greenpeace and the World Wide Fund for Nature, WWF. The revelations of child labour had similar consequences. Marianne Barner and others at IKEA went to countries like Nepal, Bangladesh and India to talk to suppliers, as well as unions, politicians, activists and non-profit bodies, UN organisations and rug exporting associations.

“We also went on surprise raids on rug factories, saw child labour with our own eyes and were sometimes literally thrown out,” says Marianne. She says that even so, there was still a tremendous desire and readiness to develop among IKEA employees and suppliers in India. “We realised that IKEA had an opportunity to influence and help change things. At the time though, we didn’t really understand just how big an opportunity.”

Sceptical reception

When IKEA first contacted non-profit players like Save the Children and UN bodies like UNICEF and the International Labour Organization (ILO), it was met with scepticism. “We were often invited along as ‘the bad guy’ – a representative of major multinationals,” explains Marianne Barner. “It took a while before people realised we were serious about wanting to learn and cooperate. From the very beginning, our starting point was the Convention on the Rights of the Child’s principle to always do what’s in the best interest of children in everything we do. Our own corporate culture at IKEA was also important, such as not doing everything alone but collaborating with others. Also always thinking long-term, taking responsibility and acting for the many people. And for IKEA, children were, and still are, the most important people on Earth.”

On the advice of Save the Children, IKEA brought in an independent consultant to check that the suppliers were complying with the new agreements. Even so, as soon as 1995 a new revelation came along, when German TV showed pictures of children working at an Indian rug supplier that had signed the new agreement. “There was no doubt that they were rugs for IKEA,” says business area manager for textiles at the time, Göran Ydstrand. After seeing the pictures, there was a lightning response in India, and soon after that Göran was in a studio in Germany. There, on live TV, he explained in broken school German that IKEA had immediately halted production with the supplier in question. That was well received, but ultimately it would not be enough to fight fires whenever a crisis arose.

Close down or develop?

Some members of the IKEA management group now started saying the company should simply end production of rugs in South Asia, which were only a small part of the range anyway. Instead, Marianne Barner started looking at how the company could make a long-term contribution to fight child labour. Meanwhile, the German police announced that the film about child labour in India was fake. It turned out that the renowned German journalist had made several fake reports about different subjects and companies. He lost his good reputation, but for IKEA the damage had already been done. And for the people most closely involved, like Göran Ydstrand and Marianne Barner, it didn’t really matter that this particular film was fake. It was clear that child labour and debt slavery were a huge problem in manufacturing in South Asia.

While awareness increased of the often dire, sometimes dangerous working conditions that could occur with suppliers in countries where IKEA had them, a new purchasing manager started, Sven-Olof Kulldorff. For the first eight months in his new post, he visited different places around the world. His impressions from factory visits and chats with suppliers led to a new strategy for purchasing, and to a policy document called Credo. This was a first step towards the more far-reaching codes of conduct that would come later. “The hard thing isn’t writing policies, but making sure they’re complied with,” says Sven-Olof Kulldorff. “Especially with such a low level of awareness. The aim was to show that the results were better for everyone if things were done properly.”

Sven-Olof and his team focused on getting the management on board with the new ideas around codes of conduct for suppliers. The key areas were simplicity, clarity, measurement and consequences. “To begin with, Ingvar was worried it would cost more. But it doesn’t. It’s always cheapest to do right from the start. Treating people well is a good investment whatever the country. You get better people, better motivation, productivity and quality.”

Code of conduct launched

Following extensive work, studies of international declarations, and cooperation with UN bodies and non-profit organisations, in 2000 IKEA presented its first code of conduct to combat child labour, as well as its IWAY code (The IKEA Way on Purchasing Home Furnishing Products). These documents covered everything from child labour to working conditions, minimum wage and environmental issues.

“There were now regular controls right down to the subcontractor level, but the measures were about far more than just controls,” says Marianne Barner. “We no longer simply shut suppliers out, as that was a major blow to poor families. When we discovered child labour, we instead took a break in our cooperation until the supplier could show evidence of new procedures, as well as guarantees that the children in question had been compensated and were being helped into education. We also wanted to contribute to a change in attitudes, both among suppliers and in society as a whole.”

The Teflon Shield

The changes at IKEA took place in discreet silence, and were first highlighted internationally in 2001 in an article in Newsweek magazine. It described IKEA as a successful “prototypical Teflon multinational”. Unlike other companies, wrote Newsweek, IKEA had managed to avoid or deal with attacks from young activists in the environmental and anti-consumption movements. The article said that IKEA seemed to have built a defensive “Teflon shield” – not through campaigns, but with proactive measures against child labour and eco-scandals, for example. IKEA CEO at the time, Anders Dahlvig, was interviewed and said: “We don’t do things just to get rid of a problem … It’s rooted in our value system … Call it Teflon if you like, but now we have something I think we can stand up for.”

In the mid-2000s, Harvard Business School, USA published a case study of IKEA and the way it dealt with child labour, entitled: “IKEA’s Global Sourcing Challenge: Indian Rugs and Child Labor”. Still today, the study is one of the schools’ most popular among students and faculty. Professor Robert Strand, Executive Director of the Center for Responsible Business at the Berkeley Haas School of Business, often uses the Harvard case study in his courses. “It’s timeless,” he says. “The example from IKEA shows that business is fundamentally far more about cooperation than hyper-competition, which we often think – at least in American companies. IKEA built up collaborations and partnerships with Save the Children and UNICEF, and with its suppliers, which ultimately worked in everyone’s favour.”

Marianne Barner says that the approach developed by IKEA in the 1990s is now the norm. “Collaborations between companies and the non-profit world are now completely natural, but they certainly weren’t back then,” she says. “What I personally am most proud of is the code of conduct to prevent child labour, and that we took a stand on the primary principle of what’s best for children, clearly and early on. And the fact that the work we initiated still inspires today.”

Work in progress

After ten years’ exchange of knowledge and experience, as well as different projects with UNICEF, Save the Children and others, IKEA started what came to be known as the IKEA Social Initiative, later incorporated in IKEA Foundation. The IWAY code of conduct has been constantly updated, and is still, today, being refined to encompass the entire value chain. It is no longer just about making checks in production, but about results-oriented implementation. Many areas have to be clarified, whether it’s procedures and regulations for everything from animal husbandry to diversity, gender equality and inclusivity, responsible use of land and water resources, or clarity around what IKEA really means by decent, meaningful work. Conditions for migrant workers is another area that needs deeper study. Moreover, IWAY needs to be in tune with new business models and working methods at partner companies, including the gig economy . When the world changes, IKEA changes with it.