So called supplier audits have become a cornerstone of Corporate Social Responsibility (CSR) programs across the globe, famously used by companies including Apple, Walmart, Nike, The Gap, and many more.
The audits are generally conducted based on a given company's formal written standards for supplier conduct, and generally show a high and often improving level of supplier compliance to those standards.
But are such audit programs largely a charade in terms of actual effectiveness in affecting supplier behavior?
Supply Chain Digest Says... |
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| Nike stated in its 2012 sustainability report that "We have learned that monitoring does not bring about sustainable change. Often, it only reinforces a pattern of hiding problems." |
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The surprising answer is Yes, according to a new report on the topic from the University of Sheffield, which says that "Ultimately, the audit regime is working' for corporations, but failing workers and the planet."
The report is based on 25 interviews authors Genevieve LeBaron and Jane Lister conducted with ethical auditors, business executives, NGOs [non-governmental organizationa] and supplier firms in North America, the United Kingdom and China, as well as visiting factories in the Pearl River Delta region of China.
The report notes that various NGOs have developed standards in their areas of expertise for supply chain behavior that are then often adopted as part of a given corporation's supplier standards. Examples include the Rainforest Alliance certification, Marine Stewardship Councils, and Fair Labor programs. Partnerships include Greenpeace working with Coca Cola to reduce greenhouse gas emissions and Oxfam working with Unilever to integrate smallholder farmers into its supply chains.
"As such, the contemporary governance of global supply chains is increasingly reliant on an ethical and voluntary 'benchmarking regime' supported by both corporations and civil society groups, which has audit inspections as its cornerstone," the report notes.
In fact, the rise of these NGO standards and audit programs by corporations has had the effect of causing local governments at all levels in many countries to step back from creating and enforcing their own legal standards in such areas as rules relative to employee pay, conditions and more.
One of the persons interviewed for the report put it like this: "By adopting the process that said 'we got it, this is our ball, we're going to do something about supply chain,' Walmart, on behalf of the entire retail industry, said, 'this is our problem. This isn't a government regulatory problem. This isn't China's problem, this isn't Vietnam's problem. This is our problem. We have the power, resources, and ability to deal with it and we will.'"
Such a switch from governmental to corporate monitoring of standards and behavior might be fine if the audits were actually effective, but they generally are not, the report says.
In fact, Nike stated in its 2012 sustainability report that "We have learned that monitoring does not bring about sustainable change. Often, it only reinforces a pattern of hiding problems."
Most audits, the report notes, are pre-announced, enabling producers to falsify records and rid facilities of unauthorized agency contractors or exploited workers during audits, noting that "One auditor told us that, because most audits are announced, or at least semi-announced, the factory usually 'has the opportunity to drill their people on what they need to say.'"
Another big issue, the report says, is that supplier audits tend to concentrate on tier 1 suppliers, whereas most of the issues with the environment and treatment of labor are in tier 2 or 3 suppliers.
"Evidence from food, clothing and other industries indicates that the most exploited workers (e.g. forced and child labor) tend to be found in sites with complex subcontracting arrangements," the report notes. "Some evidence suggests audits have worsened conditions by shifting problems further down the supply chain."
It adds that audits often do not detect unauthorized subcontracting arrangements.
What's more, most audit firms have no investigative powers and so have limited capacity to verify that information presented to them, whether about safety conditions, contracts or environmental standards, is accurate.
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The reports says its interviews also highlighted the existence of a "checklist" mentality for audit compliance, with a director of a UK audit firm telling the authors that the majority of audits are "not trying to find things out, they're trying to prove that something is not there."
The report does not comment on the ability of firms to acquire or manipulate say payroll data, which is another issues with audits that others have called out in the past.
 In support of their arguments, the authors cite several example of where there were major accidents at supplier sites that had recently passed the audit process. For example, in Bangladesh in 2012 the Tazreen Fashion factory was audited on behalf of Walmart. Safety concerns were noted, but it was not recommended that the plant be closed. Two months later, the factory burned down, killing over 100 people.
The report is also critical of the level of transparency that corporations operate under when it comes to audit data, noting that "Information about abuses and non-compliance is rarely made available to governments or consumers and, as such, they are rarely resolved."
The report also finds that audits typically treat social concerns separately from environmental concerns.
"This divide allows companies to work towards, and highlight, improvements in one sphere - typically the environmental - whilst allowing social standards to persist or even worsen," the report claims.
"The research found, for example, that companies in the Pearl River region in China exposed this divide. We found that companies were investing in clean water and eco-friendly technology to secure 'eco' certifications and attract business, but that this often came at the expense of social [and labor related] goals," the report says.
Alas, the report really offers no real recommendations for improving the audit process, though it does imply changes such as more local governmental enforcement of labor laws and use of third party auditors instead of corporate employees would deliver better results.
"Audits are ineffective tools for detecting, reporting, or correcting environmental and labor problems in supply chains," the report concludes. "They reinforce existing business models and preserve the global production status quo."
The full report is available here: Ethical Audits and the Supply Chains of Global Corporations
Are you surprised by these findings on the value of supplier audits? What could be improved? Let us know your thoughts at the Feedback section below.
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