Knights Apparel and the Alta Gracia Factory: Paying a Living Wage

Knights Apparel and the Alta Gracia Factory: Paying a Living Wage

By
Paul Brest, Debra Schifrin
2014|Case No.SM237| Length 25 pgs.

In 2014 The Alta Gracia clothing factory in the Dominican Republic was doing something quite unusual in the industry; it was paying its employees a living wage, which was 350 percent higher than the country’s minimum wage.  Knights Apparel, which owned the four-year old factory, also provided benefits, health care, and allowed the workers to unionize. Most apparel factories paid employees a minimum wage, which in some places was not enough to pay for workers’ basic needs and the needs of their families. Knights Apparel founder and CEO Joe Bozich, the driving force behind Alta Gracia, came to this decision from both business and personal motivations. Knights Apparel was the number one provider of licensed collegiate logo apparel, and Bozich saw the opportunity presented by the growing number of college students unhappy with the working conditions of the people making their schools’ branded apparel. Personally, Bozich said he wanted to provide “hope and a pathway out of poverty for generations to come.”

However, Alta Gracia’s production costs were 20-30 percent higher than at Knights’ other factories, and Alta Gracia was losing over half a million dollars a year. Knights was able to keep Alta Gracia open only by subsidizing it with funds from its profitable business units. Knights was a private company, but Bozich was still accountable to his board and the company’s large multi-billion-dollar institutional investors. Over time, Bozich had convinced many of them to back Alta Gracia, but he needed to pull the factory into profitability soon in order to prove it was a viable business model. If Alta Gracia was successful, Knights would have to decide if it should be expanded. There was also the question of whether Knights would be able to replicate Alta Gracia, and if it could, should it? Other companies had tried and failed to offer a living wage and become profitable. Would Knights be different? 

Learning Objective

The teaching objective is for students to consider and debate the following questions: 1) How does a company balance social good and making a profit? 2) Is it acceptable to prioritize social good if it creates financial losses? 3) Which stakeholders is Knights ultimately responsible to? 4) Was the company more willing to take a financial risk because of the social responsibility element? 5) Would Bozich have been able to create Alta Gracia if Knights was a public company?

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