Yesterday I had a good discussion with Bergson Wang, who has worked in the CSR (corporate social responsibility) departments of Adidas and Puma.
There is one thing both of us believe: using audits does not work if the goal is to improve working conditions.
The system is broken
Systematic audits is the solution chosen by the vast majority of brands that follow a social compliance policy. However, this system is not effective, for two reasons.
First, the information contained in the audit reports is wrong.
If I take a wild guess, here is my estimate:
- 30% of the time, auditors get bribed and ignore some “inconvenient” evidence.
- 50% of the time, auditors don’t look deep enough, or the problems are very well hidden — remember, CSR audits deal with people and papers; employees can be instructed to lie and records can be fake.
- 20% of the time (and I am probably optimistic), the manufacturer deserves to pass (with or without corrective actions to implement).
And why can’t most manufacturers respect the “compliance” criteria? Because their customers are constantly pushing for lower costs!
I pointed to a study of the perverse effects of social audits in a previous article.
Second, big companies are happy with the audit system.
They appoint a third party that conducts the audits. The suppliers pay for the audits. In some cases, the auditing company has to give a part of the fees back to the buying company, as part of the deal.
If the buyer has its own audit team, they still charge their suppliers for audits. It quickly becomes a profit center!
So it costs them nothing. And it gives them the information they need for their annual report: “90% of the subcontractors we use are 70% compliant or above, and these numbers are better than last year”.
What big importers would do, if they cared
What do manufacturers need? Guidance and gentle pressure to improve, coming from their biggest customers.
And it is starting to happen. Tchibo, a huge German coffee chain that also sells clothing, household items, and electrical appliances (purchased from about 1,000 suppliers in Asia), is leading the way.
Their new program was initiated with about 100 key suppliers in China and other Asian countries. It is entirely voluntary. Suppliers that accept to give it a shot are not audited for 2 years.
Manufacturers get advice from consultants, who come to the factory every 3 months (at the buyer’s cost). These consultants facilitate communication between the management and the staff of the factory.
If the factory owner takes this initiative seriously, it is believed that ultimately he will save money:
- No more audits to pay for this customer
- Better staff retention at CNY, a more experienced workforce, better morale and engagement, better quality, better efficiency…
You can read more about this program here.
Read this post next 👉 Brands and Retailers: Please Stop Doing Social Compliance Audits in Asia
There’s an interesting book titled “The China Price” by Alexandra Harney (Harning?) which discusses social compliance audits. Her account is that many of the Chinese factories have moved through several stages to stay ahead of the auditors and their clients.
First step was hiring consultants to coach employees on the “right” answers, develop duplicate sets of records, etc.
Second step is to create a front factory and a “shadow” factory. The public factory actually meets the standards… while 80 – 90% of production volume is done at a second “shadow” factory, where business as usual prevails. An alternative is to outsource the work.
If anyone gave any serious study they could see that the front factory had nowhere near the capacity required to meet the customer’s schedule… but this study was overlooked.
One of the major sticking points with the social compliance audits is the notion that we (Western management experts) know the “right” way to run a factory. While abuses such as skipping paychecks or careless handling of toxic materials are reprehensible, many of the employees are themselves glad to have hours well in excess of the standards; they are then complicit in the deception. Similarly, “child” labor can be a subjective issue. Factory work at age 16, for example, isn’t permitted in much of the US, but might be appropriate and fully legal elsewhere.
While social responsibility per se isn’t part of my charter in factory relations, I do look for signs of worker engagement, fundamental worker safety precautions, and other basics in my sourcing and supplier supervision. To the best of my knowledge, my suppliers are reasonable in their employee relations.
Brad,
Yes, “The China Price” is a very good book, and I advise everybody to read it.
And I agree with you about the subjectivity of criteria such as working hours and child labor.
Nice article and looking forward to purchase this book very soon.
Thanks for sharing
Regards
Neha