Buyers beware: audit idiocy
Rachel Wilshaw Ethical Trade Manager
16th Aug 2011
Some companies go to crazy lengths to cheat auditors. But Rachel Wilshaw, shows that there may be room for optimism.
Workers wearing goggles upside down, as the personal protective equipment has only been rented for a day to pass an audit.
A training course for Chinese factory managers on 'how the mice can escape the cats'. To pass an audit, they coached workers to give the 'right answer'.
Software that shows how to keep double books on hours worked and wages paid: one for the auditor, one for the management.
The national anthem being played as a signal for under-age workers to exit out the back of a factory as the auditor comes in the front.
Undocumented workers sliding down a chute into an unauthorised factory beneath the one slated for audit.
A canteen for workers to eat and rest set up as a result of audit; but. To pay for this, the factory raised the performance target so high workers couldn't use it.
There are many examples of audit idiocy that Oxfam has heard over the years.
In an attempt to ensure there is no embarrassing exploitation in their supply chains, companies sourcing manufactured goods, garments and fresh produce have commissioned millions of audits on developing country workplaces in recent years.
On the plus side, ethical (or social) audits have helped companies map their supply chains, signalled zero tolerance of child and forced labour, and delivered improvements in health and safety - typically 80% of 'corrective actions' relate to this.
But they have a serious flaw as a tool for assuring labour standards: they drive hard-to-solve problems underground where auditors can't find them, and give a false positive.
Workers may experience forced overtime, harsh treatment, poverty wages and denial of Freedom of Association.
But with just five hours in a factory of 600 workers afraid to speak out for fear of losing their (often precarious) jobs? No chance of finding these big systemic problems, even if the auditors had the expertise or will to do so.
Presented simultaneously with unrealistic expectations about wages and hours, and tough price negotiation, the reaction of many factory and farm managers to the advent of audits has been, let's say, un-transparent.
A cost, not an investment
The audit industry is now estimated to be worth $80 billion dollars a year. The World Bank recently calculated that parallel (duplicate) audits in the Vietnam garment industry has added $50 of cost per worker per year.
'Corporate social auditors are a wart on the face of the CSR industry' is how they were described by a senior trade unionist in the garment and footwear sector, the late Neil Kearney. 'The current approach is simply not sustainable in the longer term. It needs to be replaced by a mature system of industrial relations based on social dialogue where representatives of management and workers become daily monitors of workplace situations'.
In terms of 'lean manufacturing', audits could be seen as a form of waste, adding cost but not real value.
So what would work better?
Companies with more mature ethical trade programmes have recognised the limitations of audits and are investing in challenging but ultimately more transformational approaches.
Three of these are:
Investing in better HR management skills and systems. An auditor can then check the management system, rather than the detail.
Laying the foundation for more mature industrial relations, by developing relationships with trade unions at all levels and ensuring workers have a 'Right to unionise guarantee'.
Integrating ethics into business practices, eg by using a 'balanced scorecard' when selecting suppliers, and rewarding better factories with more business.
Instead of playing cat and mouse, these companies are starting to get to the root causes of problems and deliver more sustainable supply chains.
For more information
Oxfam's briefing for business, Better Jobs in Better Supply Chains
carries mini case studies of retailers and brands who are investing in more sustainable approaches, and advice about ways to avoid over-reliance on commercial audits. This includes minimising duplication, using more forensic audits where risk is high and going 'beyond audit' where leverage and length of relationship allow.
The Ethical Trading Initiative also runs training courses on approaches to risk assessment, and has issue-based advice, case studies and a current blog on the challenges of auditing on its website; go to www.ethicaltrade.org.uk
Rachel Wilshaw, Ethical Trade Manager for Oxfam GB, email: email@example.com.
This post was first published on the Guardian Sustainable Business blog.