Foxconn: The Fire That Wasn't

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Over the past month, media reports have made Foxconn (FXCNY.PK:OTC) the icon of Chinese labor suffering. Headlines from The Telegraph (March 7) read " iPhone Workers Beg Apple for Better Working Conditions." Daily Tech wrote, " Employees at Apple's Hellish Foxconn Factory Feel Life is 'Meaningless'." Sounds like a scary place.

My office building shares a property line with Foxconn's largest plant in Shenzhen. Every night I see Foxconn employees at restaurants. They seem happy, but after reading many articles, I've come to view them with pity. Yet, friends who work as consultants to Foxconn tell me that working conditions are quite good.

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There are thousands of factories in the Pearl River Valley and a there is free flow of employees between the factories. I wondered how could a company be so abusive and yet so successful? It seemed to defy logic.

I began to wonder, "What does Foxconn look like through the eyes of its employees?"

Foxconn is a Taiwanese-owned company that produces about 40% of the world's consumer electronic products and is Apple's ( AAPL) largest supplier. Its largest factory in Shenzhen employs approximately 300,000 young adults. It's beyond huge. As a personal disclosure, I am neither related to, nor friends with any FoxConn employee and I do not own Foxconn stock. I do own AAPL.

Most FoxConn employees come from the countryside where their hardworking families have farmed the same land for many generations. They dutifully send home part of their paycheck each month.

From 1988 until 2009, four Foxconn employees attempted suicide on-site (0.18 per year). In 2010, that number increased almost one hundred times to eighteen. In 2011, it fell again to four. What happened in 2010?

In 2010, embarrassed by bad publicity, the company offered condolence pay packages equivalent to 10 years' salary to families of the deceased. This was widely reported in China and company officials say the incentive served as a call for depressed individuals to join Foxconn and leave life with honor. Foxconn CEO, Terry Gou read this letter to shareholders: "...now I'm going to jump off Foxconn, really leaving now, but you don't have to be sad, because Foxconn will pay a bit of money, this is all your son can repay you now."

In the second half of 2010, Foxconn publically stopped the condolence payments. In 2011, the suicide rate dropped by almost 80%. It is important to note that even at its peak, Foxconn's suicide rate was 1.5 per 100,000 vs. 3.1 per 100,000 in China -- half the suicide rate of society at large.

Maybe the suicides were not about labor conditions.

Last week, my colleague Jiangying, a 23-year-old Chinese woman, and I randomly interviewed 22 Foxconn employees to see their world through their eyes. We assiduously adhered to behavioral science protocols for unbiased questioning, but you can judge for yourself. Here are our questions and here's what we heard.
  • "Tell us about your day at work. What do you like and not like about your job?"
  • Most told us that their job was "OK." No one brought up the topic that work was too demanding. So we asked about their work demands. Almost all said they were reasonable. Surprisingly, one third said their workload was "light or "easy," but none of these worked on the production line. We asked them if their friends were satisfied with their jobs. All but two either said "yes" or "I don't know."

    We asked if their work area was clean and safe. All said that it was.

    Because we did not hear unsolicited complaints about their work, we asked a leading question, "Do your friends often complain about their work?" A strong majority said that they know people who complain about their work. However, the nature and intensity of the complaints did not seem unusual from what one might expect in any work place.
  • "Tell us about your pay."
  • Only a few brought up pay without this question. One said, "The pay is too low." We asked, "Is the pay lower than other factories?" She said, "The pay is the same, but other factories give more overtime. I am losing 1,000 RMB per month!" She went on to tell us that she stays because there is so much career opportunity at Foxconn when compared to a typical Shenzhen factory.

    In our first day of interviews, we asked about the infamous 12-hour (7 a.m. to 7 p.m.) days, but no one knew about these work hours. We returned on the second day determined to find the answer. We asked equipment supply people who serve many production lines. They insisted that no one works 12-hour days. We even stopped a female janitor. She didn't know either.

    Ironically, the biggest dissatisfaction by far, was lack of overtime. Most of those we interviewed work the 8:00 a.m. to 5:30 p.m. shift with a 90-minute lunch break. With one exception, all said they wanted more overtime -- especially Saturday work. Saturday pays double time. Saturday work is competitive and, at best, employees are limited to one Saturday per month. Additionally, some told us that the maximum allowable overtime for their group is 16 hours per month while others said that their maximum is 36 overtime hours per month.
  • "What do you do after work and on the weekends?"
  • The vast majority of Foxconn employees are between 18 and 25 years old. Three hundred thousand, mostly single, young adults who did not go to college and leave work at 5:30 p.m. Their interests are the same as any young adult. They play pool, soccer, surf the internet, eat with friends and date. But, like new college students, most were homesick and said they want to go home.
  • "Tell us about your manager."
  • Only two said they did not like their manager. A small group had no opinion, but the majority smiled and when we asked this question. They said they liked their manager.

    After all the interviews, we wondered, "Where's the fire?"

    Last month ABC News aired an "exclusive inside look" of Foxconn. It was 15 minutes of sensational build-up about sweatshops - smoke, with no fire at all.

    The ABC crew was given permission by Apple to talk to anyone about anything. Their gotcha moment was a chat with one young lady edited down to one leading question, "If there was one thing you could change, what would it be?" The young lady said the dorms are too crowded and the trees block the sunlight. That's their best shot?

    Last week, the Fair Labor Association began a formal Apple-sponsored investigation of Foxconn. After his first visit to Foxconn, the gray pony-tailed president of the FLA, Auret van Heerden said, "The facilities are first-class; the physical conditions are way, way above average of the norm." Being "way, way" above average is not what one might expect from the "hellish Foxconn factory."

    In today's highly connected, blog-filled world, what is the probability that, in a random sample of 22 Internet-savvy employees, no one has either personally experienced or heard of the oft repeated stories of abuse?

    These are two fundamentally different representations of reality. Maybe the fault lies with media members who want to believe in Chinese labor abuse, maybe it's that sensationalism sells or maybe it's simply lazy writers forming opinions from others' opinions. The root cause is unclear.

    But one thing is certain -- the media is not telling you the truth.

    At the time of publication, the author was long AAPL, although positions may change at any time.

    Hall is managing director of Human Capital Systems (www.humancapitalsystems.com), a firm that designs systems for improving workforce performance. He is also an instructor in Duke Corporate Education's teaching network and author of The New Human Capital Strategy. Hall was formerly a senior vice president at ABN AMRO Bank in Amsterdam and IBM Asia-Pacific's executive in charge of executive leadership and organization effectiveness. During his tenure, IBM was twice ranked No. 1 in the world in Hewitt/Chief Executive magazine's "Top Company for Leaders." Hall completed his Ph.D in industrial-organizational psychology at Tulane University, with a dissertation on people management practices of Japanese corporations.

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