Focus Areas

Our approach to International Labor Standards focuses on:

Integration within our business operations
Education of licensees and vendors
Monitoring of the factories to assess working conditions
Remediation activities that encourage and promote sustainable practices
Collaboration with a wide range of external stakeholders on common objectives
Public policy to support labor standards improvement
Transparency of the program's activities to facilitate education, learning and evolution

We have been working on some of these areas, like monitoring, since the beginning of our program. Other areas, like remediation, are areas that have been a core part of our approach, and we have been evaluating how to make those approaches more effective. And still other focus areas, like public policy, are areas that we've just begun to explore.

Integration

The ILS group maintains a dedicated staff of approximately 70 in 10 countries to promote integration within Disney's global and functional operations. These team members orient new Disney employees about the ILS program, explain their roles and responsibilities in operating the ILS program, participate in the negotiation of contracts with licensees and vendors and act as a first line of communication within Disney about the operation of the ILS program. The team also operates an online learning program for Disney employees in the U.S. with respect to key ILS issues.

The ILS team plays a critical role in ensuring that Disney's ILS expectations are a part of daily activity for all of our varied business groups � groups whose needs and objectives evolve on a regular basis, who need to adapt quickly to changing business opportunities and who operate with different business models and supply chains. Briefings for business group employees and employees of licensees and vendors take place regularly and are reinforced on an ongoing basis as people and activities evolve. The focus of such meetings includes explanation of Disney's ILS program requirements to new employees, support for business negotiations to include ILS requirements in licensee and vendor contracts and discussion of licensee, vendor and factory performance.

In addition, members of the company's internal ILS Advisory Group � a cross-functional team of Disney executives � work both collectively and independently to integrate the ILS program into business unit operations. Their role in reviewing policy, identifying business impacts of ILS policy changes and supporting and confirming key policies ensures that our ILS objectives are appropriately reflected in the Company's operations.

Education

We work closely with licensees, vendors, agents, factories and social compliance monitors to communicate our program principles, policies and compliance expectations. This happens through seminars, presentations, meetings and formal training sessions. As part of this process, Disney requires licensees and vendors to inform us of, and gain our approval for, all factories involved in the manufacture of Disney-branded product.

An increasing number of Disney licensees and vendors maintain their own labor standards programs, and conduct regular assessments of factories manufacturing their products. Disney evaluates these programs to determine whether their standards and factory assessment approach are consistent with our own. Where possible, Disney accepts these factory assessments to expand our knowledge of factory conditions.

Education of licensees is partially integrated into business processes, as licensees are informed of their ILS obligations during business negotiations, and again in more detailed fashion after an agreement is signed. Members of our ILS team also provide educational support to enable licensees to fulfill their ILS compliance obligations, including processes for identifying factories they intend to use for the manufacture of Disney-branded product. The ILS team holds regular updates with major licensees and retailers, to exchange information on how the respective programs work and to ensure that licensees are informed of the compliance status of their factory base.

Where requested, the ILS team also assists business counterparts in establishing, maintaining or expanding their own programs. And to the extent that our licensees and vendors participate in Multi-Stakeholder Initiatives (MSIs) or industry initiatives that involve factory assessment, we accept assessments performed by these organizations as well. Examples include the Ethical Trading Initiative, Fair Labor Association, International Council of Toy Industries CARE Foundation, Social Accountability International, Worldwide Accredited Responsible Production Business Social Compliance Initiative and others. We also periodically assess other companies' labor standards programs in order to gain insight that can help us improve our own program.

Monitoring

Disney has been involved in factory assessment operations since 1996, and these activities continue to serve an important role in our overall program. Information gleaned from our on-site factory assessments provides us with context and understanding of factory conditions necessary to guide and evaluate our integration, education, remediation, collaboration and transparency efforts. While conducting on-site factory assessments remains an important part of our ILS program, we find it increasingly useful to employ alternative methods to identify and address issues, including the use of a confidential worker helpline as well as the coordination of assessments and remediation with other brands and organizations.

Assessment Resources

We utilize a number of specialized teams to conduct social compliance assessments. We maintain teams of specially trained social compliance monitors on staff in Guangzhou, China; Mumbai, India; and Glendale, California, who are responsible for conducting factory assessments according to our Code of Conduct. In addition, we engage external social compliance monitoring firms to conduct assessments in countries where we do not have staff. We regularly engage with these monitoring firms to communicate our expectations and share best practices for the execution of a social compliance assessment. Lastly, some of our licensees and vendors maintain their own social compliance programs with either dedicated social compliance monitors on staff or through relationships with external monitoring firms. Where such programs meet our standards, we accept the output of those processes.

Targeted Assessments

Manufacturing of branded product takes place in more than 100 countries across the globe. When we conduct factory assessments ourselves, we prioritize which factories we visit according to highest risk, using data and information obtained through Disney's years of experience with factory conditions in these countries. We supplement this information with external country data and reports such as the Transparency International Corruption Perceptions Index (CPI), the AccountAbility Responsible Competitiveness Index (RCI) and the United Nations Development Program Human Development Index (HDI). Approximately 93% of the factory assessments conducted in 2008 were in high-risk countries.

Assessment Process

The assessment process starts with a factory visit, known as the Initial Assessment, which can be either scheduled or unannounced. It includes interviews with workers, review of payroll and other pertinent records and visual inspection of the factory premises. If non-severe violations are discovered during an Initial Assessment, we will allow the factory time to correct the issues and will conduct a Follow-Up Assessment after a period of time to confirm that they are making progress. Increasingly, our licensees and vendors are also assuming responsibility for conducting factory assessments.

Elements of the Factory Assessment

An opening meeting with the factory management takes place at the start of each assessment to discuss our objectives, the scope and process of the assessment, and (if the factory is new to the manufacture of Disney-branded merchandise) introduce our Code.
Working conditions, including health and safety requirements, are assessed by a visual walk-through of all manufacturing areas, dormitories and canteens and any warehouse or storage areas.
Employment policies, including hiring and disciplinary practices, and evidence of employee compensation, working hours and benefits, are assessed through the review of relevant documents such as personnel records, payroll records, piece rate records, timecards, production records and other pertinent documentation.
Information gathered from documents is further corroborated through worker dialogues conducted outside the presence of factory management.

Unannounced Factory Assessments

Our goal in conducting on-site factory assessments is to obtain an accurate and current evaluation of working conditions. To do this, we need access to several things: workers, management, relevant documentation and the physical premises. Since our monitors sometimes need to travel great distances to get to a factory, we historically have arranged for an assessment date with factory management beforehand in order to ensure that we can access everyone and all items we need to successfully complete our assessment. This ensures the best chance for our monitors to gain access to records, management, accountants and human resources personnel. It also ensures that monitors are able to locate the factory, in locations where street addresses are not common or change, or where the address is incomplete.

However, we know from experience that assessments can cause anxiety and may encourage factories to present the best possible and not always most accurate picture. Therefore, in 2006 we began to test unannounced assessments in China. Compared with scheduled factory assessments conducted in the same region during the same time frame,, unannounced assessments had a higher percentage of findings of violations in almost every Code category. We continued throughout 2007 to conduct more unannounced assessments, and in 2008 roughly half of the assessments we conducted ourselves in China were unannounced.

In 2009, we plan to conduct a larger number of unannounced factory assessments in China, and we will begin testing some unannounced assessments in other countries as well. We are increasing the number of unannounced assessments � and we encourage our licensees and vendors to do the same depending on the nature of their relationships � because we believe that we get a more accurate picture of the true working conditions of the factories. However, this approach also means that we will have a greater number of instances of factories denying us access to their staff or factories. In 2008, 10% of the assessments we arranged directly and scheduled in advance resulted in those factories denying us access at the time of the audit. For the same time period, unannounced assessments resulted in a 26% rate of denial of access. When a factory denies us access to their facility to conduct an assessment, we communicate to the licensee or vendor that their factory did not allow us entry to conduct a social compliance assessment. We expect the licensee or vendor to reinforce with their factory that access to the facility is a critical requirement in order to maintain authority to make Disney-branded product. We give them one additional opportunity on a different day to allow us access. If we are still denied access after that second chance, then we have no option but to terminate our authorization of work in the factory. Lastly, in cases where monitors will have to travel great distances to reach a factory, those factory assessments will remain scheduled.

Spotlight On: Confidential Worker Helpline

The Situation

As part of our on-site factory assessment process, Disney monitors meet with workers to understand their perspectives on their working conditions, learning a great deal about factory conditions. However, some workers may not feel comfortable sharing information so, we've sought other ways to empower them to raise questions
and concerns, obtain information on their rights and responsibilities and to pursue remedies, where warranted.

The Opportunity

In southern China, we worked with a local civil society organization (CSO) to help develop and implement a confidential worker helpline. The helpline is operated by the CSO and was installed with the agreement of factory management at more than 20 factories that produce Disney-branded products. The CSO provides introductory training to workers on occupational health and safety, existing labor law and how to access the helpline via a free phone number. The CSO receives worker calls, provides guidance to the workers, and reports the issues - without revealing the identities of the individuals - to Disney and the factory management on a monthly basis, or
immediately in cases requiring urgent attention. Where issues relate directly to the factory's inability to meet Disney's Code of Conduct for Manufacturers, we meet with the factory to review the information reported to the helpline, discuss potential causes and remedies and agree upon an improvement plan.

Results

Results of the helpline to date reveal that:

In its first three years of operation, the helpline received more than 600 calls from workers, suggesting that
this type of feedback mechanism is embraced by workers.
In approximately three quarters of the calls, the issues and inquiries have related directly to the labor law and Code of Conduct. The remaining calls were of a more personal nature.
In some cases concerns were not identified through the regular assessment process. When this has been the case, the objective of Disney and the CSO is to work toward resolution of these issues.

The confidential worker helpline is providing a benefit to workers and is proving valuable to us as it helps to
improve our understanding of factory conditions. We will continue to track progress, and use what we're learning from workers and factories to guide improvements in our ILS program.

Remediation

Our assessment process often results in findings of noncompliance with one or more of the standards set forth in our Code of Conduct. We use this information to help us prioritize issues and resource deployment, and then conduct a prompt investigation of the situation. The most common violations found during assessments are related to health and safety, excessive working hours, inability to verify compliance (in part due to record discrepancies) and overtime wages.

We take several steps to identify areas that need to be addressed.

At the end of a factory assessment, monitors explain preliminary findings to the factory management.
Assessment reports are then reviewed by our ILS team who further evaluate the factory's compliance against the Code and local labor law and then create corrective action plan letters or other reports to communicate expectations for remediation to the licensees and vendors responsible for choosing those factories.
Depending on the type and level of nonconformance, factories are given a certain period of time to demonstrate improvements in factory working conditions, which are then typically verified through follow-up assessments.
- Our Code of Conduct for Manufacturers contains 12 provisions that we expect manufacturers to meet. However, noncompliance with some of these provisions creates greater immediate risk to factory workers. Accordingly, we prioritize certain violations that require immediate correction. Examples of our �zero tolerance" issues include child labor, involuntary labor and physical abuse. Other issues require prompt attention, but we will allow factories time to correct them, including wage and hour violations.
Licensees and vendors are expected to communicate the findings to the factories and support their remediation efforts.
Ultimately, the factory is responsible for taking corrective action.

Though we strive for sustained improvement in factory compliance, continued noncompliance with the Disney Code and local labor law may result in a factory being declared ineligible for Disney production. In our fiscal year 2008 we withdrew production authorization from approximately 500 factories due to severe or continued noncompliance.

In addition to non-compliances identified through the assessment process, we also receive information from and act upon claims brought to us by other sources � NGOs, unions and other companies. We use this information to help us prioritize issues and resource deployment, and then conduct a prompt investigation of the situation. We then work with the factory, the licensee or vendor who sourced the product, and sometimes other parties to develop a remediation plan to help bring the factory's operation into compliance.

Training and Building Capabilities

Some situations may warrant a special remediation process, which might, for example, include factory management training, communications training or the implementation of a confidential worker helpline. We are also continuing to explore opportunities to enhance compliance efforts through industry and stakeholder initiatives, and by employing what we learned through Project Kaleidoscope (described separately) in the application of a continuous improvement model that may prove more effective in promoting long-term compliance.

Spotlight On: Supporting Remediation and Factory-Owned Compliance

The Situation

In 2005, 2006 and 2007 a Hong Kong-based group, Students and Scholars Against Corporate Misbehavior (SACOM), published several reports alleging poor working conditions at factories making books, toys and other items for Disney licensees in China.

Disney's Response

We investigated the claims immediately and confirmed that some of the factories included in the reports did indeed have compliance issues, while other factories were not authorized to produce Disney products at all due to repeated failures to comply with required Disney ILS policies.

We engaged the licensees, and in some cases the factories directly, on developing proactive, comprehensive approaches to compliance with the Disney Code of Conduct for Manufacturers. However, a few factories were unwilling to remediate, and therefore we withdrew authorization to produce Disney-branded product from these factories.

Results

The remaining factories developed and implemented comprehensive compliance plans, and addressed issues related to worker claims with the assistance of third-party mediation resources.

Factories - Zhong Shan Hung Hing and Shenzhen Hung Hing

Implemented formal factory-level compliance policies and procedures, supported by centralized record keeping and line supervisor training on social compliance and management skills.
Updated employee handbooks to better communicate compliance policies and workers' rights.
Upgraded safety devices on machinery, and updated and improved health and safety training for workers.
Established an Environment, Health & Safety Committee with workers as elected committee members.
Introduced a confidential worker helpline operated by an independent civil society organization.

Factory - Kam Long

Implemented a compliance plan to the factory as noted above.
Adopted "Key Performance Indicator" reporting based on learnings from Project Kaleidoscope. This allowed the factory to track progress and enhanced goal-setting.
Conducted a factory management and worker communication workshop and a root cause analysis to assist
in identifying and addressing fundamental causes of noncompliance.

Factory - Ho Wai

Provided basic training on labor law and occupational health and safety.
Provided a communication workshop to promote constructive and open communication.
Introduced a confidential worker helpline operated by an independent civil society organization.
The factory moved its operations to two factories in a neighboring city in early 2008. In the new location the licensees and factories are undertaking a comprehensive compliance plan to engage several outside
parties to oversee, assess or provide training to the factory employees.

What We Learned

Cooperation and willingness to remediate on the part of all parties involved - especially the licensee, vendor and factory - are essential to achieving sustainable changes and improving factory working conditions.
Working with organizations outside of the immediate supply chain enhances the process of identifying
factory issues and finding solutions.

Collaboration

We believe collaboration is key to improving working conditions systemically and have sought to collaborate with external parties interested in and able to contribute a broad range of perspectives, experiences, knowledge and cultural sensitivities. Working directly with licensees, vendors and other stakeholders to encourage strengthened labor standards allows us an opportunity to learn from others and simultaneously share our experience and suggestions. Through these efforts, we continue to test new approaches to encouraging responsible labor practices in compliance with our Code. Some of our collaboration has been informal and ongoing for many years. In other cases, we've decided to formalize relationships and recently signed agreements with both Social Accountability International and the International Council of Toy Industries (ICTI) CARE Process. Some of our collaborative engagements are described below.

Project Kaleidoscope

Between 2002 and 2008, Disney, McDonald's Corporation and a group of organizations working to improve working conditions in company supply chains carried out a collaborative project designed to promote sustained compliance with labor standards mandated by corporate codes of conduct for manufacturers. We invite you to read the final report of Project Kaleidoscope in English, Simplified Chinese or Traditional Chinese.

The project was piloted at 10 contractor factories in southern China, and through this effort an alternative approach to long-term, sustained code compliance was developed and successfully field-tested. The project involved several key elements:

Enhancing training and education for management, supervisors and workers, and potential positive compliance incentives.
Remediation in factories that demonstrate significant compliance issues, in order to minimize circumstances in which factory termination is the only business alternative.
Working with local nongovernmental organizations as well as individual factories with the goal of developing practical implementation approaches, including training and remediation methods and tools.

What did we learn from this effort and how are we applying the understanding going forward?

First, the process helped us understand that internal management systems are critical if factories are to take a more central role in identifying and resolving issues under their control. Understanding what a management system is, identifying key performance indicators (KPIs), and having a process by which KPIs are collected, reported and acted upon will help factories better manage their own performance. As we developed the management systems approach � termed �Dynamic Social Compliance" (DSC) � we engaged the assistance of a major international testing and compliance firm � TUV Rheinland Hong Kong Ltd.- to train factories in this area. This firm has since developed a training program as part of its regular offering to clients. There are now a handful of factories - separate from those in Project Kaleidoscope - that have undergone or are in the process of implementing the DSC management system approach. This training is also being offered to factories outside of Disney's supply chain. We are pleased that an international organization has learned from, adapted and found a market for a process developed under the aegis of Project Kaleidoscope.

We also learned the importance of having a facilitated, multilevel communication process inside the factory. We utilized an existing process called �participatory rapid appraisal" (PRA) to bring together multiple, different representatives of the factory � managers, supervisors, workers � to participate in workshops to identify issues and solutions. Gaining input from multiple participants can empower a wider range of factory staff to raise concerns and to do so in a constructive manner that is solution-oriented. Since the project concluded, we have had our internal monitoring team in China trained in this methodology and have even helped some other factories learn the process.

Better Work / Better Factories Cambodia

Disney has been and continues to be a supporter of both the Better Work and Better Factories Cambodia initiatives. Better Work is a partnership between the International Labour Organization (ILO) and the International Finance Corporation (IFC). It supports factories in improving their labor standards based on core ILO labor standards and national labor law and through factory-level assessments, training, reporting and multi-stakeholder engagement. Better Work is developing both global tools and country-level projects in Haiti, Jordan, Lesotho and Vietnam, with plans to expand beyond these countries over time.

Better Work is building upon the learnings of the ILO's Better Factories Cambodia initiative. Better Factories Cambodia promotes improvement in apparel factories in Cambodia by monitoring and reporting on working conditions in Cambodian garment factories according to national and international standards, by helping factories to improve working conditions and productivity, and by working with the Cambodian government and international buyers to promote a rigorous and transparent cycle of improvement.

More information on these initiatives is available at www.betterfactories.org and www.betterwork.org.

Multi-Fibre Arrangement (MFA) Forum

In 2006, Disney began participating in the MFA Forum, an open network of more than 70 participants representing brands and retailers, trade unions, NGOs and multilateral institutions, whose aim is to promote social responsibility and competitiveness in national garment industries that are vulnerable after the expiration of apparel and textile quotas. In particular, Disney participates in working groups focused on Latin America and Bangladesh.

Business for Social Responsibility (BSR)

Since 1998, Disney has been a member of BSR, a global business network and consultancy focused on sustainability. Over the past decade, BSR has provided guidance on leadership in good labor practices and development of sustainable business strategies and solutions, and has led numerous working groups including Disney and other companies.

Social Accountability International (SAI)

Disney joined SAI in 2008. SAI works with companies, consumer groups, workers, nongovernmental organizations (NGOs), trade unions, local governments, as well as a network of agencies accredited for SA8000 auditing, to help ensure that workers of the world are treated according to basic human rights principles. Our goal in joining SAI is to access information on SA8000-certified factories, best practices in factory assessment and training resources.

International Council of Toy Industries (ICTI) CARE Process

Disney formalized a relationship with the ICTI CARE Foundation's ICTI CARE Process in 2008. The ICTI CARE Process is the international toy industry's ethical manufacturing program, aimed at ensuring safe and humane workplace environments for toy factory workers worldwide. The initial focus is on China, including Hong Kong and Macau, where the majority of the world's toys are manufactured. Expansion is contemplated, over time, to other countries where toys are made. Disney has been accepting ICTI CARE Process factory assessments for a number of years, but we recently made a more formal acknowledgement that the ICTI CARE Process would satisfy the requirements of our monitoring program. We plan on working further with the ICTI CARE Process to strengthen the program and to better utilize their factory assessment information.

Public Policy

We believe that engagement with various government organizations is an important way to share and coordinate common objectives of improving labor standards. In particular, we have met directly with U.S. and Chinese government agencies, among others, to learn about how each of our organizations approach labor rights issues and to seek ways to work in tandem to mutually support our common goals. In 2006, we convened a meeting of more than 20 U.S. companies with the U.S. Department of State's Bureau of Democracy, Human Rights and Labor to explore ways in which we could work together to support labor rights improvements throughout the world. We convened a similar meeting in 2008 with the U.S. Department of Labor's International Labor Affairs Bureau. We have also periodically met with district, provincial and state officials in China, and in 2008 hosted a delegation of labor officials from Guangdong Province at our headquarters office in Burbank, California. Lastly, through our involvement in various multi-stakeholder initiatives, including the IFC and ILO Better Work program and the MFA Forum, we are able to access government perspectives on labor issues in a range of countries in which our branded products are manufactured. Going forward, we aim to explore further ways in which we can support existing government initiatives to improve labor standards and leverage those efforts for greater impact.

Transparency

This Corporate Responsibility report represents an important element of our commitment to share information with our stakeholders. Through this and other methods, we plan to convey our policies, programs, challenges and achievements to interested stakeholders on a systematic basis.