The Teflon Shield

IKEA is a curious success story. The lines at the Swedish stores are endless, its furniture requires an engineering degree to assemble, yet its $8.5 billion global sales empire is expanding rapidly. Even more interesting is its reputation. It hires factories in impoverished countries like Laos, and its wooden furniture is a threat to forests from Borneo to Russia. Its image as the McDonald's of home furnishing is enough to offend the sensibility of anti-globalization protesters. Yet time and again, IKEA has managed to duck the charges that stick to brands like McDonald's and Nike, and to keep its name off the banners now waved in anger from Seattle to Prague to Bangkok.

IKEA is the prototypical Teflon multinational. Like Ronald Reagan, known as the "Teflon president" (after the nonstick coating on cooking pans), there is an emerging class of global corporations that by virtue of cleverness, charisma or plain dumb luck manage to dodge or deflect the brand-bashing attacks launched by angry radicals. Obviously, it helps to come from a little country like Sweden, not the big, bad United States, and to be No. 2 or 3 in your industry (far smaller than the likes of Home Depot). The largest target always catches the most flak. Yet for more than a decade now, IKEA has also been moving quickly--even pre-emptively--to address charges linking it to everything from child labor to dangerous plastics. As a result, no charge ever sticks for long. Executives have scanned the horizon for possible threats--and stunned save-the-forest types by showing up at the door with generous offers of money and help. Not surprisingly, IKEA has rarely heard its name chanted in disgust, at least not for long. "Maybe it's because we don't do things just to get rid of a problem," says CEO Anders Dahlvig. "It's rooted in our value system."

This sounds like traditional public-relations speak. But IKEA's strategy goes well beyond that. It involves clashing with one's enemies, building coalitions with the opposition, backroom deals, painful reform--in short, political trench warfare. Ever since the Battle of Seattle in December 1999, when rioting protesters trashed the city's business district during a free-trade summit of world leaders, the anti-globalization forces--from unions to environmentalists to students--have been widening their hit list. They've launched new campaigns against new targets, from banks to home builders. They now talk cockily of their ability to "swarm," to rally many activist allies for "direct action" against the stores and offices of a single corporation around the world on a single day. As the protests gain momentum, so do the efforts of multinationals to slip away from charges that they run roughshod over workers, plants and local cultures in the developing world. They are trying to build a Teflon shield, whether they put it that way or not.

Many may end up studying how IKEA has maneuvered through the past decade unscathed by charges against it. When residents of several rich New York suburbs rose up last month to block the construction of an IKEA store, it was not the first time locals had complained that the Swedish retailer would wreck the neighborhood. Yet IKEA still poses no challenge to Wal-Mart as the symbol of the invasive megastore. News that IKEA will open its first store in Israel this year got a positive reception, even though the company's founder, Ingvar Kamprad, now honorary chairman at 75, admits he attended Nazi gatherings after the war.

The quirky, privately held company was run for decades by Kamprad, who built the business into an affordable yet attractive self-assembly furniture store for the masses. Notorious for cost-consciousness, he forbade first-class flights and forced managers to find the cheapest hotels. The egalitarian tone still exists in practices such as "anti-bureaucratic weeks," when managers work in stores or warehouses. So when it came to corporate responsibility, says Dahlvig, "we didn't have to force it down the throats of our managers."

IKEA liked to think of itself as a better corporate citizen than most, so it was stunned by the first threat to its good name. The issue of child labor had just reached popular awareness in Europe in 1992 when IKEA was blindsided by a Swedish documentary. The film showed kids chained to weaving looms in Pakistan, and cited IKEA as a customer. The newly hired business manager for carpets, Marianne Barner, immediately terminated the Pakistani contract. Then she added a clause to all supply contracts forbidding child labor, and set off to Pakistan, India and Nepal to have a look around. On the advice of an activist with Save the Children in Stockholm, she hired a company to monitor suppliers in the region.

The headaches had just begun. A year later a German documentary claimed that kids as young as 5 were slaving over hand-woven rugs for $4 a day at Sheena Exports, a carpet factory near Delhi that had supplied IKEA for five years. Barner immediately fired Sheena for what she thought was a "black and white" issue. It turned out that the story was fabricated, but with 80 percent of IKEA carpets made in India, the PR damage was severe.

IKEA was learning. "It's too easy for a company to fall into a comfort zone, but then something shakes you up and you realize that you were in denial on some things," says Dahlvig. In December 1997, Barner got back on a plane to investigate reports that two of IKEA's textile suppliers in India used kids under 14. Finding no evidence of abuse, she tightened monitoring of the minimum working age. That same month new reports linked IKEA to a wicker supplier employing children in the Philippines, and Barner again swooped in to investigate. She fired the supplier for refusing to cooperate on better policies. Nonetheless, the same story resurfaced in the Netherlands a year later, setting off protests.

IKEA needed to do more than skip from crisis to crisis. Executives sought out advice from UNICEF, the International Labor Organization and unions. In the autumn of 1999, Barner arrived at the New York office of a rather skeptical Alex Fyfe, senior adviser on child labor at UNICEF, who thought she had come begging for an endorsement. Instead, she listened closely as he explained that the best solution to child labor was to attack root causes, like poverty and lack of education. By the summer of 2000, IKEA had donated a half-million dollars to UNICEF to fight child labor in the carpet belt of India by setting up schools and other programs in 200 villages. "They are almost a model of what a company should do," says Fyfe.

One labor fire was out, but by then another had erupted. Nordic woodworkers had threatened in '98 to organize a boycott over reports of dismal working conditions at IKEA's Romanian supplier. The woodworkers union demanded a meeting with IKEA executives, who were "extremely skeptical at the start," says union leader Ulf Asp. But by May, IKEA had agreed to apply ILO standards for working conditions. Then a joint team from IKEA and the union went on an inspection tour of suppliers in eastern Europe and Asia. Union monitor Marion Hellmann recalls watching happily as IKEA dropped a Thai supplier after it refused to rehire a man fired for trying to organize workers. The boycott never materialized.

To understand how difficult it is for a corporation to win over the opposition this way, consider how often it backfires. Last year more than 40 of the world's bluest chips signed on to Global Compact, a United Nations program sponsored by Secretary-General Kofi Annan. By agreeing to support human and labor rights and environmental standards, companies from Du Pont (which invented Teflon in 1938) to Volvo get to use the blue U.N. logo. The pact was instantly criticized as inadequate because it includes no monitoring. And Corporate Watch of San Francisco dismisses it as "bluewashing"--a new spin on "greenwashing," activist slang for concealing corporate sins under a veil of "green" advertising.

If claiming to do the right thing is no longer enough, neither is doing the right thing. Nike has set the apparel-industry standard for reform of wages, hours and minimum working ages in its contract factories, yet it remains a prime target for anti-sweatshop activists, who say the standard is still too low. They are stepping up attacks on the world's largest shoemaker even though runners-up Reebok and Adidas often subcontract the same factories. In fact, Nike is in many ways the anti-Teflon multinational--a company that seems to draw fire because of its "in your face" corporate culture (following story). "At first Nike was just one of many prominent targets for us," says Erik Brakken, a staff organizer for the United Students Against Sweatshops in Washington, D.C. "They've become the main target by leading the battle against us."

Even joining the activist cause is not a foolproof defense. Consider the Body Shop, the U.K.-based cosmetics firm whose founder, Anita Roddick, has built the business on the idea of "community trade" and funded muckraking campaigns against larger companies, such as Shell. Promoting her favorite theme, "Trade, not aid," she posed for an ad standing alongside the chief of the Kayapo Indians, an Amazonian tribe that supplies the Body Shop with Brazilian nut oil. The chief then accused her of exploiting his image. The Body Shop is still a favorite of mainstream activists, but it is just another "corporate hypocrite" to radicals.

Many big companies are choosing, like IKEA, to beat a silent retreat in the face of real or potential attacks. After the broken windows at Starbucks came to symbolize the 1999 wreckage in Seattle, the coffee chain chose the path of least embarrassment. Last April, San Francisco-based Global Exchange planned a 30-city protest to force Starbucks to sell beans sold by cooperatives that defend the interests of small growers. The company dispatched senior executives to agree to the demands, and Global Exchange backed off. Similarly, Japan's Mitsubishi Corp. appeased protesters last year by abandoning a salt plant in Mexico that threatened pristine coastline and the offshore habitat of whales.

As was true of Ronald Reagan, the Teflon quality of many multinationals includes an almost undefinable combination of charisma and circumstance. Sony's reputation for quality is so strong that when its electronics arm last fall refused investor requests to adopt strict European Union standards on recycling, the fuss lasted only a few days in the London papers. Many huge global corporations easily shrug off public controversy because they don't sell directly to the public (chart). Multinationals based in Asia fly below the radar of Western activists, and growing local protest movements have tried but failed to stir up outrage against huge Indonesian mining operations and Malaysian logging firms. "There's a whole new class of multinationals that are unbranded, unknown and extremely difficult to regulate or put pressure on," says Dara O'Rourke, professor for environmental policy at MIT.

That may not last. Activists were emboldened by Seattle, and are no longer wary of taking on complex industries. In recent months, groups like the National Wildlife Federation and Friends of the Earth have started targeting banks that "fuel the chain saws" and offering activists seminars on sorting through financial records. On April 11, American activists will launch "Spank the Bank," targeting Citigroup on a rainbow of issues--including financing of the controversial Three Gorges Dam in China. Pretty soon, no multinational will be able to rely on circumstance for cover. "This year's Teflon companies could be the hardest hit 10 years from now if they aren't careful," says John Elkington, founder of Sustainability, a British firm that advises companies on social responsibility.

IKEA learned that lesson the hard way. For years it had a naturally "green" reputation, loosely based on its roots in conscientious Sweden and its preference for untreated blond wood. That started to erode in the late 1980s when the finish on IKEA bookshelves was found to have illegally high levels of formaldehyde. Then Greenpeace started leaning on companies, including IKEA, to stop using PVC, the hazardous plastic. By the early '90s, IKEA was running environmental-awareness sessions for 20,000 of its employees, but the training was so theoretical it left employees frustrated.

The company founder decided to step in himself to come up with a more practical plan. Kamprad dispatched his personal assistant to Greenpeace International's Amsterdam headquarters, where staffers described faltering efforts to map the disappearing forests of the world. The IKEA man immediately jumped on board. The stunned activists quickly called in Dirk Bryant, director of Global Forest Watch. He flew to Amsterdam expecting the IKEA reps to be "corporate suits," but found "they were just like us, in sweaters," recalls Bryant, who still sounds shocked by how IKEA energized the mapping project with $2.5 million in funding.

It was a masterstroke. Though most famous for its wood furniture, IKEA is rarely attacked by tree huggers out to save ancient forests. There is some grumbling about its wood sources in Russia. And Robin Wood, a merry band of German environmentalists, started to protest in 1999 after spotting teak furniture at IKEA. It ended in one day, with IKEA executives chatting amiably with members of Robin Wood and later pledging to sell teak only if it is certified by environmentalists as new growth.

In the end, IKEA's Teflon shield is less a product of luck and Swedishness than of hard work. It was forged in rapid response to crises, hardened by strategic retreat when necessary and covered by a policy of discreet silence--even when IKEA was trying to do the right thing. For issues as flammable as child labor or destroying forests, no publicity is good publicity. IKEA has drafted a code of conduct for all 2,000 suppliers governing everything from overtime to recycling techniques. In-house inspectors around the globe will use a 59-item checklist to evaluate suppliers every two years. IKEA's environmental team is looking at railways and other alternatives to exhaust-belching trucks that aggravate global warming. Yet IKEA had not talked about any of these measures in public before NEWSWEEK asked. "Call it Teflon if you like," says Dahlvig. "But now we have something I think we can stand up for." When the next activist attack comes, as it inevitably will, IKEA's defensive shield will be stronger than ever.