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Why Apple Inc. (AAPL) Isn’t Among the 25 Best Companies in America: Google Inc (GOOG), Microsoft Corporation (MSFT)

It must do better
Apple’s supply chain needs to improve. The challenges it faces there are common to all multinational corporations operating in such a globalized economy, but due to its stature Apple garners more attention over labor-related transgressions at Foxconn and other manufacturing plants in China.

For example, Foxconn also assembles other gadgets like Microsoft Corporation (NASDAQ:MSFT)’s Xbox 360 and Samsung’s competing Galaxy S III, but since those products don’t carry the same volumes as Apple, they are able to avoid some of the negative publicity. That being said, Apple does bear more responsibility to enact meaningful change with labor practices because it carries more weight.

It’s for that reason that Apple chose to join the Fair Labor Association a year ago, becoming the first technology company to join as a participating company. The FLA has helped improve working conditions in numerous industries from coffee to apparel. In February 2012, Apple voluntarily had the FLA begin inspections in order to audit supplier factories in China and compile detailed reports of its findings. After the investigation was complete, the FLA said it found “excessive overtime and problems with overtime compensation; several health and safety risks; and crucial communication gaps that have led to a widespread sense of unsafe working conditions among workers.”

A status report published five months later showed that Foxconn had made progress with improving conditions, including areas like employee health, safety, and working hours. There’s still much work to be done, as working hour compliance ticked down since August as the number of workers increased. Cook has said that while Apple is obsessed with product secrecy, it’s equally fixated on supplier transparency, which is why it produces thorough supplier responsibility progress reports that detail improvements as well as shortfalls.

Apple is one of many companies that outsource manufacturing overseas, but as a leader, the company is doing what it can to improve the broader industry.

Foolish bottom line
Apple is one of the best-run companies in the world. In many ways, Tim Cook has improved Apple organizationally relative to Steve Jobs, even if Cook is less of a “product guy.” The company nurtures innovation at every level and attracts talent from all over the world, while inspiring unprecedented levels of customer loyalty for a consumer electronics company.

That’s all translated into incredible gains for shareholders, which now also benefit from dividends. Cook has made Apple more charitable and improved supply chain transparency and conditions, even if it still has room to improve there.

Ultimately, the supply chain issues surrounding Apple were what resulted in it not making the cut, even though Apple ranks highly among investors, customers, and employees. The company bears primary responsibility for human rights transgressions within its global supply chain, even if other companies technically contribute to the problem as well.

Supply chain transparency has become a priority for Apple and there have been signs of improvement. For example, Apple has reached a new high of 99% compliance of working hours as of January 2013. There have also been recent reports that Foxconn has been seeing higher worker retention in part due to improved conditions and wages.

If Apple can continue making meaningful progress on this front, it may earn a spot in next year’s rankings.

The article Why Apple Isn’t Among the 25 Best Companies in America originally appeared on Fool.com and is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, Google, and Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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