One of the most persistent and challenging corporate responsibility issues for many global brands is how to manufacture products in contract factories in less developed countries while paying fair wages and maintaining acceptable working conditions for workers.

We recently wrote, for example, about the global giant Nike, whose three main product lines — footwear, apparel and equipment — are made in approximately 600 contract factories that employ more than 800,000 workers in 46 countries around the world.  In a corporate responsibility report published in January, Nike acknowledged that wage and working conditions issues remain problematic.

“While we can point to many examples of improvements, challenging issues remain for our company and our industry in systemically identifying and tackling how to affect long-term system-wide change,” the company said.

Now The New York Times reports in a lengthy feature story of a “high-minded experiment” at a factory in Villa Altagracia, Dominican Republic, that is a “response to appeals from myriad university officials and student activists that the garment industry stop using poverty-wage sweatshops.”

With 120 workers, the factory is owned by Knights Apparel, a privately held company based in Spartanburg, S.C., that is reportedly the leading supplier of college-logo apparel to American universities.  “Industry experts say it is a pioneer in the developing world because it pays a ‘living wage’ — in this case, three times the average pay of the country’s apparel workers — and allows workers to join a union without a fight,” according to the Times.

While that “living wage” is only $500 a month, the Times story reports on worker Santa Castillo, who says: “We never had the opportunity to make wages like this before…I feel blessed.”  Comparing this factory with others, union leader Maritza Vargas says, “the difference is heaven and earth.”

The experiment has been driven by Knights Apparel CEO Joseph Bozich, who, after being diagnosed with multiple sclerosis, decided that “I wanted to find a way to use my business to impact people that it touched on a daily basis,” according to the Times.

Another powerful factor has been Knights Apparel’s strong brand presence among college and universities, and a bet by the company that students will be willing to pay a premium for products made by workers that are treated well.

The economics of the business are illuminating.   Paying the 120 workers the “living wage” – or $500 a month – means the factory’s cost will be $4.80 a T-shirt, 80 cents or 20 percent more than if it paid minimum wage. Knights will absorb a lower-than-usual profit margin, selling the shirts for $8 wholesale, with most retailers marking them up to $18, according to the Times.

Knights Apparel developed its plan working closely with the  Worker Rights Consortium (WRC), an independent labor rights monitoring organization that works “to combat sweatshops and protect the rights of workers who sew apparel and make other products sold in the United States.”  The WRC has over 175 college and university affiliates.

Apparel makers Nike and Addias are board members of the Fair Labor Association, a collaborative effort that provides affiliated colleges and universities with information on the labor compliance programs of companies involved in the production of collegiate merchandise. The FLA says it has over 200 colleges and universities in the U.S. and Canada.

A Nike spokesman said his company would “watch with interest” the Knights initiative, according to the Times.

The report - "Staying the Course -- The 2009 Community Involvement Index"  - is based on a survey conducted every two years by the Boston College Center for Corporate Citizenship, which said that "community involvement is the cornerstone of most companies' commitment to corporate citizenship and the findings of this survey offer encouraging evidence that the foundation remains sound."

Among the findings:

• In the face of economic pressures of historic proportions, most companies held their ground in support of community involvement programs. While a significant percentage of companies cut their community involvement budgets, 62.1 percent maintained or increased budget levels. And though 37.8 percent of respondents' companies cut their community involvement budget, only 20.9 percent decreased staffing.
• What was once a very local concern of business now encompasses issues of global proportions. As community involvement becomes more complex, the survey data reveal that strategic intent has emerged as a well-established guiding principle for most programs. "The findings also show that businesses continue to struggle with the challenge of demonstrating measurable social impact from their initiatives in the communities where they operate" according to the survey report.
• On the philanthropic front, the most common rate of donation reported by respondents is less than 0.5 percent of pre-tax profits, cited by 34.3 percent of those surveyed, with a little more than 1 in 4 companies, 27.8 percent, donating more than 1 percent of pre-tax profits.

Employee volunteering is also at the core of community involvement programs for companies though participation levels in those programs are not as extensive as might be expected. Just 30.3 percent of survey respondents reported that their companies have more than 30 percent employee participation and 45.3 have 15 percent or less participating in volunteering programs.

"The findings of this survey offer a snapshot of the community involvement field," said Chris Pinney, director of research and policy at the Boston College Center. "It gives a glimpse of how companies are approaching this evolving function in today's challenging business environment."

A copy of the survey's key findings can be downloaded here.