Social Responsibility Initiative, Kellwood Company

KELLWOOD COMPANY SOCIAL RESPONSIBILITY INITIATIVE

Kellwood Company is a leading marketer of apparel and consumer soft goods specializing in branded as well as private label and licensed products. Kellwood products reach the consumer through a multitude of retail channels, including department, mass, specialty, mail order, and discount stores by providing products designed to meet the needs of their intended audience. In procuring product to meet these needs, Kellwood maintains a sourcing mix of company-owned manufacturing facilities and reputable outside contractors and suppliers.

As an integral part of its social responsibility obligations, Kellwood respects the dignity of the working men and women of the apparel industry, and actively supports their desire for fair compensation and a work environment conducive to their health and welfare. Kellwood demands that its own factories, and the factories of its outside contractors and suppliers, reflect this philosophy in the way they treat their workers. Kellwood recognizes that constant vigilance is required to ensure that factories producing its goods are in compliance with guidelines established to protect employees from workplace abuses.

In June 1995, Kellwood initiated a “Contractor Compliance Program” to verify that domestic contractors were complying with the United States Fair Labor Standards Act and related requirements. This stringent compliance program requires contractors to submit to audits from independent monitoring firms. In 1996, this monitoring initiative was expanded to cover international contractors as well. This program has been implemented throughout all of Kellwood Company.

As Kellwood worked through the development of this initiative, a formal program of social responsibility has evolved.

CONCEPTUAL FRAMEWORK

Code of Conduct

The Kellwood Code of Conduct clearly states the general principles by which Kellwood conducts business in its own facilities. Kellwood also expects its outside contractors and suppliers to conduct business in compliance with these same principles.
Monitoring
1. Kellwood Owned Facilities
  1. Domestic: domestic facilities are monitored by Kellwood Internal Audit and the Kellwood Safety Board to assure compliance with all laws and regulations, including but not limited to the U.S. Department of Labor wage and hour laws, the Fair Labor Standards Act (FLSA), OSHA health and safety regulations, etc.
  2. Offshore: In addition to adherence to the compliance standards of the Kellwood Code of Conduct, Kellwood facilities must meet the compliance standards of its retail customers and licensors. Kellwood also requires its owned non-U.S. facilities to be certified by Worldwide Responsible Apparel Production (WRAP).
    
    WRAP was initially developed in conjunction with the American Apparel and Footwear Association, but is now an independent, nonprofit factory based certification organization whose objective is to ensure that apparel is produced under lawful, humane, and ethical conditions. For more information visit their website at www.wrapapparel.org.
2. Outside Contractors and Suppliers
  1. Outside Contractors: Kellwood requires its outside contractors supplying finished goods to either be audited within the Kellwood social responsibility program or to be WRAP certified. Supplier facilities must also meet the compliance standards of Kellwood’s retail customers and licensors.
  2. Fabric/Trim Suppliers: fabric and trim suppliers must contractually agree to deliver goods that are made in compliance with the Kellwood Code of Conduct.
Reporting

Each Kellwood business unit tracks it’s own facilities, as well as its finished product contractors and fabric/trim suppliers. Regular input is provided to senior management at Kellwood Corporate.

KELLWOOD POLICY ON BUSINESS CONDUCT AND VERIFICATION

Kellwood business units may only use manufacturing facilities (both domestic and international) that are in compliance with Kellwood’s Code of Conduct. Domestic facilities will meet all requirements of the Fair Labor Standards Act. New factories must satisfy compliance requirements in order to become a Kellwood approved supplier.
Kellwood’s domestic monitoring program consists of three steps to be conducted on a quarterly basis:
- Each factory undergoes a quarterly audit by an independent monitoring firm.
- Each factory receives two quarterly internal audits by Kellwood division personnel.
- Each factory receives weekly QC count audits.
Kellwood’s international monitoring program consists of three steps to be conducted on an annual basis:
- Each factory undergoes a rigorous annual audit by a Kellwood approved independent monitoring firm.
- Each factory receives two supplemental audits each year, either by Kellwood personnel or agent.

SPECIFIC STEPS WITHIN SOCIAL RESPONSIBILITY PROGRAM

Kellwood's compliance initiative includes:

The goal to "elevate" non-compliant factories — The monitoring system is intended to discover any workplace problems and provide a structure to encourage the factory to correct the problem. While the monitoring system weeds out chronic offenders, most factories have responded quickly to resolve problems discovered through the monitoring process.
Factory education — Education sessions are conducted with factories and buying agents utilized by Kellwood business units. During these education sessions, bilingual instructors are used as needed, and printed materials in the native language are provided to educate factory managers and buying agents on the particular national laws they must obey. Topics include labor laws, health and safety standards and Kellwood’s expectations regarding the fair treatment of workers.
Regular audits — Each outside factory wishing to do work for Kellwood must agree to inspections by an independent monitoring firm. Even after a factory passes an audit, periodic re-inspections will occur to ensure continued compliance.
New factories — New factories are to be successfully audited prior to assigning any work. Kellwood’s philosophy is that ensuring compliance at the start of a relationship with a supplier is instrumental in preventing subsequent abuses.
Remediation for failed audits — If a factory later fails a subsequent audit, the Kellwood division may determine that the problem is severe or chronic and choose to cease all production with the factory. However, in most cases, assuming that the factory shows a willingness to comply, the facility is given time to correct the problem and is then re-audited. If the factory passes the re-audit, the facility will be utilized, but subject to further audits. During the re-audit process, a designated compliance officer within each Kellwood division explains the nature of the violation to the factory management and works with the factory to make sure that corrective steps are taken.
On-site inspections — During on-site audits (and re-audits for those who fail the initial audit), the independent monitors interview workers to determine work patterns, standards of pay, child labor, homework and offsite repairs, housing if provided, payroll deductions, etc. Random samples of factory employees are interviewed, with at least one employee per work area being selected to be included in the sample. Benchmark information gathered during pre-audit surveillance is compared with the contractor's records for that day. Required licenses are verified.
Correcting problems — At the conclusion of the on-site inspection, the monitor conducts a closing conference with factory management. The contractor signs a violation verification sheet that details any infractions discovered during the inspection. Working in good faith with the Kellwood division's compliance officer, the factory must agree to a time frame for correcting the problems and to a subsequent re-audit.
Corrective Action — Factories that fail an audit receive an explanation of the problem and what must be done to correct any shortcomings. The findings and corrective action steps are reviewed with factory management by 1) the compliance inspector, and 2) the Kellwood division's production manager.
Checks and balances along Kellwood's corporate structure — Each division of Kellwood designates a specific associate as the division's compliance officer. The compliance officer ensures that the audits occur as scheduled, and prepares summary reports for the compliance officer at Kellwood headquarters.
Subcontracting safeguards — Outside suppliers are not allowed to subcontract Kellwood production without first notifying and receiving permission from the Kellwood division. Any subcontractor must agree to participate in the Kellwood social responsibility program.

Kellwood's goal for the monitoring program is for all factories producing our goods to be in compliance with the Kellwood Code of Conduct. Although we focus on educating and helping factories, our program requires Kellwood divisions to terminate relationships with those who fail to show a willingness to comply with applicable labor laws and worker safety standards. Since the inception of the program in 1995, a number of factories have been terminated for failing to meet these requirements, but many more have significantly improved their compliance.

SOCIAL RESPONSIBILITY MONITORING APPROACHES

Independent Audits

Kellwood uses independent, professional monitoring firms who specialize in this work and have worldwide capabilities to conduct factory inspections in the numerous foreign countries in which our goods are produced.
The monitoring firms Kellwood utilizes are approved by our retail customers and licensors.
The independent monitors work from standardized audit instruments to measure compliance against Kellwood criteria, as well as U.S. Department of Labor requirements and international host country laws.
Wage and hour compliance is measured by analysis of time records and payroll records for given periods. This analysis is compared to either U.S. or the host country, legal wage and hour requirements.
Health and safety compliance is measured by a physical tour of the contractor facility and dormitory, if applicable.
Child labor compliance is measured by an analysis of employee files and is verified by employee interviews.
Compliance with other human rights issues is measured by employee interviews. Employees are asked questions about wage and hour issues, and those affecting health and safety.

Kellwood Divisional and Buying Agent Audits

Divisional production managers, QC personnel, international field personnel and buying agents conduct supplemental audits using a standard checklist.
Heavy emphasis is placed on health and safety and observation (and consequent verification) of possible child labor.
Physical observation of division production in contractor factories is a safeguard against unknown subcontracting.

CONTINUAL IMPROVEMENT OF THE SOCIAL RESPONSIBILITY PROGRAM

Since the inception of the compliance program in 1995, Kellwood has interacted with labor officials, monitors, non-governmental organizations (NGOs), retailers, and peer manufacturing organizations to benchmark compliance “best practices.” The Kellwood program has evolved and expanded as all parties interested in social responsibility have become more knowledgeable of and committed to the social compliance standards. Kellwood recognizes that social responsibility is a dynamic process that requires continual improvement.

Over the past several years, program improvements have included:

U.S. Department of Labor seminars conducted at our U.S. facilities for domestic production and QC personnel. Kellwood personnel participate in, and serve as presenters at, various forums hosted by the U.S. Department of Labor.
Addition of U.S. Customs component to CSR audits. CTPAT (Customs & Trade Partnership Against Terrorism) questionnaire became standard part of Kellwood audit in August 2003. Kellwood has been CTPAT validated by US Customs; and factory security monitoring remains a regular feature of all Kellwood audits.
Kellwood continues it’s active participation as a member of the BSR (Business for Social Responsibility) Labor Standards Working Group, the AAFA (American Apparel and Footwear Association) Social Responsibility Committee and the WRAP Industry Advisory Group. Participation in these groups helps Kellwood keep up to date on emerging compliance issues, factory practices, etc.
Kellwood is an active member of the BSR Restricted Substance Working Group and is now implementing a restricted Substance List (RSL) program with its fabric suppliers.
Kellwood’s Corporate Compliance Officer formally reviews Kellwood business units every 6 months on all phases of their compliance programs. Kellwood Internal Audit also reviews compliance as part of overall business unit audits.
The Kellwood monitoring criteria has been reformatted to be more user friendly to the factory and a new presourcing audit tool has been added for agents and Kellwood sourcing managers to pre-screen factories.

FISCAL 2005 UPDATE

Contractor Audits
1. During fiscal year 2005, Kellwood initiated a total of 1,000 independent audits conducted by outside monitoring firms. Additionally, some Kellwood retail customers and licensors conducted their own audits in a number of our factories.
2. Domestic: During the past 12 months Kellwood business units utilized a monthly average of 91 domestic contractors. Each contractor received a quarterly independent audit. For this 12 month period, the passing percentage averaged 99%.
3. International: Kellwood business units utilized a monthly average of 637 international contractors. Each contractor received an annual independent audit, with reaudits if necessary. An overall pass rate of 94% was achieved. With respect to failing audits, either corrective action was taken to correct any deficiencies or Kellwood ceased doing business with such factories.
4. Overall Company audit status is presented monthly to senior management at Kellwood Corporate and within the business units.
Kellwood Owned Factories (WRAP)

Kellwood requires that owned factories be WRAP certified in addition to passing other compliance audits required by Kellwood customers.
Contractor Facilities (WRAP)

Kellwood recognizes WRAP certified factories as meeting Kellwood compliance standards. These factories may also continue to be evaluated in accordance with other Kellwood and customer compliance requirements.

FISCAL 2004 CODE OF CONDUCT ANALYSIS

In Fiscal Year 2004, Kellwood commissioned a policy review of the Company’s Code of Conduct requirements as compared to actual Code of Conduct compliance, which were revealed through audit findings in various parts of the world. The information assembled from this review will be used by the Company on an ongoing basis, as the analysis reveals Code of Conduct areas in which suppliers are more likely to not be in compliance.
The Company also conducted a check and balances review of its independent monitors.
1. Analysis by Code Violation – In Fiscal 2004, Kellwood conducted an analysis of various code violations by specific geographic region to determine patterns that now serve as guidelines by both independent and internal personnel in the monitoring compliance performance.
2. Comparison Of Results By Independent Monitor – In Fiscal Year 2004 Kellwood has also conducted sample cross check audits of its primary independent monitors. A small sample of factories was double audited within close time proximity to determine the consistency of the independent audit results. The results of this analysis are posted in Section C below.
Management Systems Approach To Compliance:
1. Kellwood believes the key to sustained compliance is to move beyond simply “conducting audits” and to work toward enabling suppliers to consistently maintain compliance through their own factory efforts.
2. Kellwood continues to work with its core suppliers to develop a management systems approach to establish factory policies and procedures to help ensure sustainable compliance.
Cross Check of Monitoring Firms
1. Summary of Findings
  1. Kellwood primarily utilizes the services of two independent monitoring firms in conducting international audits. In Fiscal 2004, a small number of vendor factories in various geographic locations were visited by these two monitoring companies to allow Kellwood the ability to compare the audit firms’ respective findings. Neither firm was aware that it was following up on an audit that had already been performed by the other firm.
  2. In most instances the two audit firms came to the same ultimate conclusion as to whether the vendors passed or failed the compliance inspections. In those few instances where the firms reached different conclusions, such differences could be attributed to the timing of the audits or on more than one interpretation of local law.
  3. Through this “check the checker” exercise, the Company did find in some instances that the two audit firms differed in their analysis of local laws in areas such as work hours and payment of social insurance. In addition, the two firms did not always provide the same level of detail in their audit reports.
  4. The Company found that both firms utilize detailed audit questionnaires and templates that cover all of the principals of Kellwood’s Code of Conduct. The two firms were also found to be consistent in their compliance methodologies, including their approaches to conducting employee interviews, an important part of any inspection.
2. Recommendations
  
  Based upon the analysis of the various audit reports from the two independent monitoring firms, the Company has and/or will continue to:
  1. Confirm the audit firms’ consistency in determining the proper application and interpretation of local laws;
  2. Make certain that all monitoring firms are consistent in determining the level of detail to explore as it relates to each element of the Kellwood Code of Conduct;
  3. Review the Company’s findings as the result of this analysis with both monitoring firms in order to achieve more accuracy and consistency in the audit and reporting processes; and
  4. Continue periodically to conduct “check the checker” audits and then respond accordingly to the findings related thereto.

KELLWOOD’S ONGOING COMMITMENT TO SOCIAL RESPONSIBILITY

Managing a large compliance program is no easy task, but the efforts of dedicated Kellwood associates, and outside contractors and suppliers have made the program a success. However, the monitoring and improvement process is on a continuum and the efforts must be sustained on an ongoing basis. Kellwood Company has been in business for more than 40 years and its policies on business conduct and social responsibility reflect the company's heritage and continuing efforts to only do business with partners who share in these philosophies and who are willing to "do the right thing." We are confident that our social responsibility program is helping to ensure fair treatment of the working men and women of the worldwide apparel industry, and is also working to provide consumers with quality products manufactured under fair and safe working conditions.

May 2006

return to corporate policies index



KELLWOOD COMPANY SOCIAL RESPONSIBILITY INITIATIVE Kellwood Company is a leading marketer of apparel and consumer soft goods specializing in branded as well as private label and licensed products. Kellwood products reach the consumer through a multitude of retail channels, including department, mass, specialty, mail order, and discount stores by providing products designed to meet the needs of their intended audience. In procuring product to meet these needs, Kellwood maintains a sourcing mix of company-owned manufacturing facilities and reputable outside contractors and suppliers. As an integral part of its social responsibility obligations, Kellwood respects the dignity of the working men and women of the apparel industry, and actively supports their desire for fair compensation and a work environment conducive to their health and welfare. Kellwood demands that its own factories, and the factories of its outside contractors and suppliers, reflect this philosophy in the way they treat their workers. Kellwood recognizes that constant vigilance is required to ensure that factories producing its goods are in compliance with guidelines established to protect employees from workplace abuses. In June 1995, Kellwood initiated a “Contractor Compliance Program” to verify that domestic contractors were complying with the United States Fair Labor Standards Act and related requirements. This stringent compliance program requires contractors to submit to audits from independent monitoring firms. In 1996, this monitoring initiative was expanded to cover international contractors as well. This program has been implemented throughout all of Kellwood Company. As Kellwood worked through the development of this initiative, a formal program of social responsibility has evolved. CONCEPTUAL FRAMEWORK Code of Conduct The Kellwood Code of Conduct clearly states the general principles by which Kellwood conducts business in its own facilities. Kellwood also expects its outside contractors and suppliers to conduct business in compliance with these same principles. Monitoring Kellwood Owned Facilities Domestic: domestic facilities are monitored by Kellwood Internal Audit and the Kellwood Safety Board to assure compliance with all laws and regulations, including but not limited to the U.S. Department of Labor wage and hour laws, the Fair Labor Standards Act (FLSA), OSHA health and safety regulations, etc. Offshore: In addition to adherence to the compliance standards of the Kellwood Code of Conduct, Kellwood facilities must meet the compliance standards of its retail customers and licensors. Kellwood also requires its owned non-U.S. facilities to be certified by Worldwide Responsible Apparel Production (WRAP). WRAP was initially developed in conjunction with the American Apparel and Footwear Association, but is now an independent, nonprofit factory based certification organization whose objective is to ensure that apparel is produced under lawful, humane, and ethical conditions. For more information visit their website at www.wrapapparel.org. Outside Contractors and Suppliers Outside Contractors: Kellwood requires its outside contractors supplying finished goods to either be audited within the Kellwood social responsibility program or to be WRAP certified. Supplier facilities must also meet the compliance standards of Kellwood’s retail customers and licensors. Fabric/Trim Suppliers: fabric and trim suppliers must contractually agree to deliver goods that are made in compliance with the Kellwood Code of Conduct. Reporting Each Kellwood business unit tracks it’s own facilities, as well as its finished product contractors and fabric/trim suppliers. Regular input is provided to senior management at Kellwood Corporate. KELLWOOD POLICY ON BUSINESS CONDUCT AND VERIFICATION Kellwood business units may only use manufacturing facilities (both domestic and international) that are in compliance with Kellwood’s Code of Conduct. Domestic facilities will meet all requirements of the Fair Labor Standards Act. New factories must satisfy compliance requirements in order to become a Kellwood approved supplier. Kellwood’s domestic monitoring program consists of three steps to be conducted on a quarterly basis: Each factory undergoes a quarterly audit by an independent monitoring firm. Each factory receives two quarterly internal audits by Kellwood division personnel. Each factory receives weekly QC count audits. Kellwood’s international monitoring program consists of three steps to be conducted on an annual basis: Each factory undergoes a rigorous annual audit by a Kellwood approved independent monitoring firm. Each factory receives two supplemental audits each year, either by Kellwood personnel or agent. SPECIFIC STEPS WITHIN SOCIAL RESPONSIBILITY PROGRAM Kellwood's compliance initiative includes: The goal to "elevate" non-compliant factories — The monitoring system is intended to discover any workplace problems and provide a structure to encourage the factory to correct the problem. While the monitoring system weeds out chronic offenders, most factories have responded quickly to resolve problems discovered through the monitoring process. Factory education — Education sessions are conducted with factories and buying agents utilized by Kellwood business units. During these education sessions, bilingual instructors are used as needed, and printed materials in the native language are provided to educate factory managers and buying agents on the particular national laws they must obey. Topics include labor laws, health and safety standards and Kellwood’s expectations regarding the fair treatment of workers. Regular audits — Each outside factory wishing to do work for Kellwood must agree to inspections by an independent monitoring firm. Even after a factory passes an audit, periodic re-inspections will occur to ensure continued compliance. New factories — New factories are to be successfully audited prior to assigning any work. Kellwood’s philosophy is that ensuring compliance at the start of a relationship with a supplier is instrumental in preventing subsequent abuses. Remediation for failed audits — If a factory later fails a subsequent audit, the Kellwood division may determine that the problem is severe or chronic and choose to cease all production with the factory. However, in most cases, assuming that the factory shows a willingness to comply, the facility is given time to correct the problem and is then re-audited. If the factory passes the re-audit, the facility will be utilized, but subject to further audits. During the re-audit process, a designated compliance officer within each Kellwood division explains the nature of the violation to the factory management and works with the factory to make sure that corrective steps are taken. On-site inspections — During on-site audits (and re-audits for those who fail the initial audit), the independent monitors interview workers to determine work patterns, standards of pay, child labor, homework and offsite repairs, housing if provided, payroll deductions, etc. Random samples of factory employees are interviewed, with at least one employee per work area being selected to be included in the sample. Benchmark information gathered during pre-audit surveillance is compared with the contractor's records for that day. Required licenses are verified. Correcting problems — At the conclusion of the on-site inspection, the monitor conducts a closing conference with factory management. The contractor signs a violation verification sheet that details any infractions discovered during the inspection. Working in good faith with the Kellwood division's compliance officer, the factory must agree to a time frame for correcting the problems and to a subsequent re-audit. Corrective Action — Factories that fail an audit receive an explanation of the problem and what must be done to correct any shortcomings. The findings and corrective action steps are reviewed with factory management by 1) the compliance inspector, and 2) the Kellwood division's production manager. Checks and balances along Kellwood's corporate structure — Each division of Kellwood designates a specific associate as the division's compliance officer. The compliance officer ensures that the audits occur as scheduled, and prepares summary reports for the compliance officer at Kellwood headquarters. Subcontracting safeguards — Outside suppliers are not allowed to subcontract Kellwood production without first notifying and receiving permission from the Kellwood division. Any subcontractor must agree to participate in the Kellwood social responsibility program. Kellwood's goal for the monitoring program is for all factories producing our goods to be in compliance with the Kellwood Code of Conduct. Although we focus on educating and helping factories, our program requires Kellwood divisions to terminate relationships with those who fail to show a willingness to comply with applicable labor laws and worker safety standards. Since the inception of the program in 1995, a number of factories have been terminated for failing to meet these requirements, but many more have significantly improved their compliance. SOCIAL RESPONSIBILITY MONITORING APPROACHES Independent Audits Kellwood uses independent, professional monitoring firms who specialize in this work and have worldwide capabilities to conduct factory inspections in the numerous foreign countries in which our goods are produced. The monitoring firms Kellwood utilizes are approved by our retail customers and licensors. The independent monitors work from standardized audit instruments to measure compliance against Kellwood criteria, as well as U.S. Department of Labor requirements and international host country laws. Wage and hour compliance is measured by analysis of time records and payroll records for given periods. This analysis is compared to either U.S. or the host country, legal wage and hour requirements. Health and safety compliance is measured by a physical tour of the contractor facility and dormitory, if applicable. Child labor compliance is measured by an analysis of employee files and is verified by employee interviews. Compliance with other human rights issues is measured by employee interviews. Employees are asked questions about wage and hour issues, and those affecting health and safety. Kellwood Divisional and Buying Agent Audits Divisional production managers, QC personnel, international field personnel and buying agents conduct supplemental audits using a standard checklist. Heavy emphasis is placed on health and safety and observation (and consequent verification) of possible child labor. Physical observation of division production in contractor factories is a safeguard against unknown subcontracting. CONTINUAL IMPROVEMENT OF THE SOCIAL RESPONSIBILITY PROGRAM Since the inception of the compliance program in 1995, Kellwood has interacted with labor officials, monitors, non-governmental organizations (NGOs), retailers, and peer manufacturing organizations to benchmark compliance “best practices.” The Kellwood program has evolved and expanded as all parties interested in social responsibility have become more knowledgeable of and committed to the social compliance standards. Kellwood recognizes that social responsibility is a dynamic process that requires continual improvement. Over the past several years, program improvements have included: U.S. Department of Labor seminars conducted at our U.S. facilities for domestic production and QC personnel. Kellwood personnel participate in, and serve as presenters at, various forums hosted by the U.S. Department of Labor. Addition of U.S. Customs component to CSR audits. CTPAT (Customs & Trade Partnership Against Terrorism) questionnaire became standard part of Kellwood audit in August 2003. Kellwood has been CTPAT validated by US Customs; and factory security monitoring remains a regular feature of all Kellwood audits. Kellwood continues it’s active participation as a member of the BSR (Business for Social Responsibility) Labor Standards Working Group, the AAFA (American Apparel and Footwear Association) Social Responsibility Committee and the WRAP Industry Advisory Group. Participation in these groups helps Kellwood keep up to date on emerging compliance issues, factory practices, etc. Kellwood is an active member of the BSR Restricted Substance Working Group and is now implementing a restricted Substance List (RSL) program with its fabric suppliers. Kellwood’s Corporate Compliance Officer formally reviews Kellwood business units every 6 months on all phases of their compliance programs. Kellwood Internal Audit also reviews compliance as part of overall business unit audits. The Kellwood monitoring criteria has been reformatted to be more user friendly to the factory and a new presourcing audit tool has been added for agents and Kellwood sourcing managers to pre-screen factories. FISCAL 2005 UPDATE Contractor Audits During fiscal year 2005, Kellwood initiated a total of 1,000 independent audits conducted by outside monitoring firms. Additionally, some Kellwood retail customers and licensors conducted their own audits in a number of our factories. Domestic: During the past 12 months Kellwood business units utilized a monthly average of 91 domestic contractors. Each contractor received a quarterly independent audit. For this 12 month period, the passing percentage averaged 99%. International: Kellwood business units utilized a monthly average of 637 international contractors. Each contractor received an annual independent audit, with reaudits if necessary. An overall pass rate of 94% was achieved. With respect to failing audits, either corrective action was taken to correct any deficiencies or Kellwood ceased doing business with such factories. Overall Company audit status is presented monthly to senior management at Kellwood Corporate and within the business units. Kellwood Owned Factories (WRAP) Kellwood requires that owned factories be WRAP certified in addition to passing other compliance audits required by Kellwood customers. Contractor Facilities (WRAP) Kellwood recognizes WRAP certified factories as meeting Kellwood compliance standards. These factories may also continue to be evaluated in accordance with other Kellwood and customer compliance requirements. FISCAL 2004 CODE OF CONDUCT ANALYSIS In Fiscal Year 2004, Kellwood commissioned a policy review of the Company’s Code of Conduct requirements as compared to actual Code of Conduct compliance, which were revealed through audit findings in various parts of the world. The information assembled from this review will be used by the Company on an ongoing basis, as the analysis reveals Code of Conduct areas in which suppliers are more likely to not be in compliance. The Company also conducted a check and balances review of its independent monitors. Analysis by Code Violation – In Fiscal 2004, Kellwood conducted an analysis of various code violations by specific geographic region to determine patterns that now serve as guidelines by both independent and internal personnel in the monitoring compliance performance. Comparison Of Results By Independent Monitor – In Fiscal Year 2004 Kellwood has also conducted sample cross check audits of its primary independent monitors. A small sample of factories was double audited within close time proximity to determine the consistency of the independent audit results. The results of this analysis are posted in Section C below. Management Systems Approach To Compliance: Kellwood believes the key to sustained compliance is to move beyond simply “conducting audits” and to work toward enabling suppliers to consistently maintain compliance through their own factory efforts. Kellwood continues to work with its core suppliers to develop a management systems approach to establish factory policies and procedures to help ensure sustainable compliance. Cross Check of Monitoring Firms Summary of Findings Kellwood primarily utilizes the services of two independent monitoring firms in conducting international audits. In Fiscal 2004, a small number of vendor factories in various geographic locations were visited by these two monitoring companies to allow Kellwood the ability to compare the audit firms’ respective findings. Neither firm was aware that it was following up on an audit that had already been performed by the other firm. In most instances the two audit firms came to the same ultimate conclusion as to whether the vendors passed or failed the compliance inspections. In those few instances where the firms reached different conclusions, such differences could be attributed to the timing of the audits or on more than one interpretation of local law. Through this “check the checker” exercise, the Company did find in some instances that the two audit firms differed in their analysis of local laws in areas such as work hours and payment of social insurance. In addition, the two firms did not always provide the same level of detail in their audit reports. The Company found that both firms utilize detailed audit questionnaires and templates that cover all of the principals of Kellwood’s Code of Conduct. The two firms were also found to be consistent in their compliance methodologies, including their approaches to conducting employee interviews, an important part of any inspection. Recommendations Based upon the analysis of the various audit reports from the two independent monitoring firms, the Company has and/or will continue to: Confirm the audit firms’ consistency in determining the proper application and interpretation of local laws; Make certain that all monitoring firms are consistent in determining the level of detail to explore as it relates to each element of the Kellwood Code of Conduct; Review the Company’s findings as the result of this analysis with both monitoring firms in order to achieve more accuracy and consistency in the audit and reporting processes; and Continue periodically to conduct “check the checker” audits and then respond accordingly to the findings related thereto. KELLWOOD’S ONGOING COMMITMENT TO SOCIAL RESPONSIBILITY Managing a large compliance program is no easy task, but the efforts of dedicated Kellwood associates, and outside contractors and suppliers have made the program a success. However, the monitoring and improvement process is on a continuum and the efforts must be sustained on an ongoing basis. Kellwood Company has been in business for more than 40 years and its policies on business conduct and social responsibility reflect the company's heritage and continuing efforts to only do business with partners who share in these philosophies and who are willing to "do the right thing." We are confident that our social responsibility program is helping to ensure fair treatment of the working men and women of the worldwide apparel industry, and is also working to provide consumers with quality products manufactured under fair and safe working conditions. May 2006 return to corporate policies index		ABOUT KELLWOOD CORPORATE POLICIES CORPORATE OFFICERS DIVISION MANAGEMENT HOTLINE POLICY AND PROCEDURES HISTORICAL HIGHLIGHTS PHILANTHROPY