Why audits are not enough for social responsibility

When it comes to social responsibility and sustainability then questionnaires and contracts may work with lawyers but they rarely do more. This article is about how any company can – and should – go much further than a supplier contract and an occasional audit.

The vast majority of us wish to live in a world where all people are treated with dignity and respect. The fact that the 17 UN Global Compact goals have gained widespread global acceptance is a testament to that. If we want to live in a rules-based global order, these goals need to become concrete action. Given the size of the global trade, business shares a responsibility to make this happen.

Many companies do work hard to ensure that their Corporate Social Responsibility efforts are watertight. They try to live up to the UN development goals with supplier questionnaires, contracts and occasional audits. Yet we live in a technologically savvy, interconnected world. What happens on one side of the planet is news on the other minutes later. Investigators and consumers are watching and willing to research your supply lines. Increasingly, they expect the business sector to live up to what should be considered basic values; caring for people and planet. They don’t care so much about your efforts. They care about the result. This means the usual routine compliance questionnaires and the odd audit won’t insulate your business from heavy flack and losses if it comes out your suppliers are behaving unethically. Like it or not, you will be tarnished with the same brush. Let’s take an example.

In the public’s eye, you are responsible for your suppliers

One day in October 2016, executives of UK retailer Marks & Spencer suddenly found themselves in a shit storm. Syrian refugee children in Turkey were allegedly making the company’s clothing, according to a BBC Panorama investigation. Other UK brands – Next, Mango, Zara – were also implicated. The children were being paid a pittance, less than Turkish minimum wage, were discarded like trash and were in some cases working more than 12 hours a day. Watchdogs, human rights defenders and consumers were disgusted. Marks & Spencer was also shocked, and to its credit, immediately agreed the findings of the investigation were “unacceptable and serious”. Since then, the company has made efforts to prevent anything like that happening again.

No one sets out to support modern-day slavery. The vast majority of us deplore it and would happily endorse all efforts to end it. But as the old saying goes, “the road to hell is paved with good intentions”. The modern world is highly byzantine; there are so many intersections, so many layers and actors it’s hard to be sure what’s really going on. What appears solid often turns out to be no more than smoke and mirrors. Perhaps this is especially true for long, complex and remote supply chains. But ignorance is no defence.

Business and Human Rights Resource Centre’s Danielle McMullan said it perfectly:

“It’s not enough to say you didn’t know about it, or that it’s not your fault. You have a responsibility to monitor and understand where your clothes [or products] are being made and what conditions they are being made in.”

There it is. Like it or dislike it, that’s the truth. So, which strategies do the companies that care pursue to ensure accountability among their suppliers?

Two old solutions that don’t cut it

Most companies use one, or both, of these solutions to ensure increased supplier accountability:

1. They send out supplier questionnaires and perhaps do occasional audits at suppliers’ production facilities.
2. They associate themselves with sustainability brand, such as Fairtrade, and effectively outsource this job to third parties.

So how do these solutions unfold in practice?

#1: Questionnaires to get suppliers to comply in writing

Here’s how it unfolds: A brand with good intentions subcontracts production to a supplier in a developing country. The supplier subcontracts to a smaller supplier. The smaller supplier cuts corners or flagrantly violates working conditions and environmental requirements. A tenacious, scandal-hungry journalist discovers the truth. A PR scandal ensues after a front page newspaper article. The brand’s response is: “it’s not our fault, our contract says that …”. Thing is no one cares what the contract says. In the court of public opinion, they’re found guilty as charged. It doesn’t matter if they did no audits or one of two per year. The point is that they failed to discover it.

Sure, maybe they signed up to the UN Global Compact. But what is this? Well, little more than another online questionnaire that a manager fills in. Is this robust enough as a form of safeguarding and checking? Definitely not. All too often they’re just another rubber stamp. And the thing is, consumers, know it. The public perception is that big companies try to avoid social responsibility by spinning things and playing the blame game. These kinds of excuses are increasingly not holding water.

Think about this poor defence you can provide to a journalist:

“They said that they would honour the UN Global Compact principles. We even visited their factory last year. How could we know they outsourced some of the production to a smaller supplier?”

Auditing didn’t work for Tesco’s chairman who had to resign back in 2014 due to poor financial auditing by PWC.

“Corporate auditing is too often a well-paid fiction under the control of a small cartel.”
 – The Guardian, Oct 23, 2014

#2: Only use suppliers monitored by eco brands

Other companies use suppliers that live up to third-party sustainability standards and certifications. Such standards include well-known consumer brands such as Fairtrade, Rainforest Alliance and hundreds more.

This way companies can outsource the job of selecting and monitoring suppliers. Also, they are able to divert the wrath of the public opinion to this third party brand should a supplier violate ethical and environmental standards.

However, when it comes to monitoring suppliers third-party standards mostly rely on questionnaires and audits as well. They often outsource this work to third parties such as FLOCERT which then audit the certified suppliers. Suppliers risk losing their certification if auditors find serious errors.

This solution is also not risk-free as the scandals involving Fairtrade coffee and chocolate will show. However, it does improve your defence of “it’s somebody else’s fault” by shifting blame to a brand that may be more powerful than yours.

(Editor’s note: Fairtrade contacted us following the release of this article. They invited us for a meeting where we talked more about their approach. Based on this more elaborate information we acknowledge that for the categories that Fairtrade covers then it may indeed be a very good alternative. Fairtrade has a limited number of suppliers and seems very professional about auditing these on the principles that this non-profit brand stands for.)

Still, the smart observer and consumer are left with the feeling that your CSR efforts probably were paid for with your marketing budget (and not a part of your company’s culture as they would like to see).

The third way

So what does a company do if it genuinely wants to go further than questionnaires and audits with direct suppliers?

Firstly, let’s acknowledge right away, as we have seen above, it’s not easy. Prepare yourself to invest time and energy to ensure it. Questionnaires and audits that capture good intentions are not enough. They might cover your ass, but if that’s all you care about we suggest taking a sabbatical and spending the time studying ethics and developing your social intelligence. So how do you go beyond these band-aid solutions?

Ideally, you would have an employee on location with each supplier everytime their producing goods for your company. This would allow you to go from the occasional (and most often forewarned) audit to permanent compliance control. Where auditing basically is about getting the truth from a sample, this would be a “full count” with nowhere to hide.

The challenge for most is that such an approach most often is too expensive. Consumers will not pay enough for ethics and only high volumes and high margins would be able to sustain this approach.

Technology as an alternative to having someone on site all the time

So since this is a money issue then we can safely assume that if the cost of doing the right things the right way are lowered then more business will do it. Simple as that. The big question is how?

This is where the concept of the transparent supply chain comes in. It asks the fundamental question: What if we know almost as much about outsourced production as we do about our own production?

There are many IoT (Internet of things) technologies that allow you to track physical goods and machinery. These may work well in capital-intensive production setups and where the price of each product is high. However, they’re often too costly when it comes to industries such as clothing and food production where you often have very small suppliers and lower priced items. For many, this is not a real alternative.

Give your suppliers a platform so they can audit themselves daily

We have a fairly simple way of letting suppliers audit themselves. It’s essentially about asking three questions:

1. What is your production process?
2. How do you ensure that our agreed sustainability principles are adhered to?
3. How can you prove that you work this way every time?

The good auditor would ask the same questions but have a hard time finding out what really happens when he’s not there. This is where you need to go further and help your suppliers with an easy way to give you transparency into their business. A common compliance platform must make the following possible:

• That each supplier can say how they work
  Each supplier must go beyond the questionnaire and map his CSR critical processes with clear processes, work instructions and roles.in his own account on your platform.
• That you can track that each supplier does as it says every time
  The supplier must then provide you with detailed checks and photo documentation each time products are produced and distributed to you. This must be done with a simple mobile phone app that any factory supervisor can use.

With a common platform and format, you’re ready to help your suppliers help themselves (and in turn help you).

Getting to higher supplier transparency in three steps

#1 Create a process hierarchy

“What the heck is a process hierarchy,?” I hear you cry. It is the first part of a management system and a first step in shining a light on how you operate, and who is involved. They are a little like an organizational chart, but rather than illustrate people and positions, they illustrate all the processes in your business and the roles responsible for them. They create the necessary clarity required to scrutinise your supply chain. Process hierarchy is about knowledge and understanding. It ensures you’re not operating in the dark. Read our guide to building them.

#2 Map out your processes

The next step is to create process maps for all of your business processes. In the context of this discussion, this is especially important for processes related to your supply chain where the issue of compliance is important. For example, creating process maps for researching and verifying the integrity of potential subcontractors, for regular monitoring of subcontractors, and for working with (rather than against) watchdogs to improve transparency would help create greater clarity and robustness in your compliance system. Creating process maps of the production process is also helpful. Knowing who is making what, and exactly when and where gives you the knowledge to properly monitor things. Check out our guide to simple process mapping.

#3 Track each time they’re followed

The problem with antiquated methods to check compliance, such as questionnaires and occasional audits, is they are easy to fake. Audit dates are known in advance. We’re seeking a higher standard. Utilising technology can give you that.

With a platform like Gluu, you can check your process hierarchy to clearly see everything that’s going on, then zoom in on a particular process, like, say, sewing T-shirts. You can see exactly what’s happening, who is responsible for the process and when and where it’s happening. By creating recurring tasks and checklists, with dates for completion, a mobile-friendly technology such as Gluu will tell you when something has NOT being done. It makes it easier to check each player the chain of suppliers complies with the contract.

For example, you could include the requirement for a subcontractor to take photos or provide a live video feed of the factory floor at key, recurring times.

It’s not foolproof, but it is an extra step to ensure compliance. As they say, seeing is believing. Instead of an audit every two years the supplier is effectively self-auditing each time the process is run.

Welcome to the near future

So all of this sounds lofty and inspiring, right? Yet, we all know making it work on the ground is another thing. To make it less abstract and more concrete, here’s an imaginary case demonstrating exactly how compliance could become much more robust with the power of today’s technology.

A case of optimal compliance in the clothing industry

In 2018, the operator of a small factory in Bangladesh signs an agreement with a small Danish clothing brand. This contains a clause that he must live up to the UN Global Compact principles.

The clothing brand has tasked him with producing a new line of clothing. At each main step of each production run, he must complete tasks that record the critical steps that he has promised to the Danish clothing brand to adhere to. For some activities, he fulfils this compliance by providing evidence in the form of images or video taken with a smartphone and automatically uploaded to the brand’s technology platform.

Track all of your suppliers in one place

In Denmark, the Procurement Manager from the small Danish clothing brand signs into his Gluu account. Here he can keep track of all their 14 suppliers’ work. Each supplier works according to their own processes, but with the same general guidelines.

Everyone confirms the completion of agreed activities online. It’s all logged automatically. The Procurement Manager may only follow up if he is notified of deviations. At the same time, he can use this greater level of transparency to evaluate work together with each supplier and identify activities that are not needed. This saves money on both sides.

In the Danish Fashion Industry Association, a workgroup is responsible for designing basic processes that it offers as best practices to its members. All of its members can choose from a directory of processes and guidelines for textile and fashion companies. Each company picks the relevant processes, which are customised and later published in separate accounts for each supplier. In this way, the company ensures a certain level of ground while helping its subcontractors to comply with agreements with themselves and customers.

Social responsibility automatically documented

In 2019, a tenacious, scandal-hungry journalist reveals that a subcontractor for Danish fashion companies uses child workers. Fortunately, our imagined small clothing brand can definitively explain its supplier management system, provide exact statistics on the number of injunctions and deviations, and show how it went above and beyond to ensure compliance. It can even show hundreds of time-stamped pictures that prove this to be a one-off error.

The clothing brand and its supplier can now say with conviction that it implemented its CSR policy throughout the supply chain. This, in turn, inspires other brands to follow suit. This helps to create greater trust and ethical social responsibility in the fashion industry, protecting brands from the unnecessary fallout.

The evidence is not a questionnaire and an annual forewarned audit but a detailed report of each action with time, place, person and photos or forms to prove it. All made in a way that cannot be manipulated in a way that a paper form can.

Going above and beyond

“You don’t get ahead by stepping in the footsteps of others”

We hope that we inspired you to think beyond the old paradigm of questionnaires and rare physical audits. With new, app-based technology, such as the Gluu platform, getting to an audit of every processor production run is not necessarily more expensive than current ways.

Having a solid compliance system is about more than covering one’s ass. It’s about ensuring and cultivating a positive climate in the business world. It’s business doing its part to ensure we live in a fair and just world. Business cannot put its hand on its heart and honestly say it’s done its best while using old, tick-the-box compliance methods, such as questionnaires and audits. We can and should do more. Technology gives us the means.

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