The code-of conduct-monitoring-compliance approach is "in need of reinvention"

The code-of conduct-monitoring-compliance approach is "in need of reinvention"

Two separate pieces of research are calling for a new approach to the garment factory auditing process, claiming that not only is there a need for more meaningful auditing that goes beyond ensuring basic compliances, but also that their current checklist approach has contributed to the problem of poor working conditions in many manufacturing hubs.

The first feedback comes from an initiative underway at Cornell University, which includes executives from C&A Foundation, Gap Inc, Esquel Group, Eileen Fisher and Li & Fung Trading.

Its 'New Conversations Project: Sustainable Labor Practices in Global Supply Chains,' notes that the current system based on corporate codes of conduct has yielded only mixed results to date when it comes to improvements in wages and labour standards. For this reason, "we believe a new conversation" is past due, it says.

Auditing "in need of reinvention" says new initiative

The second critique comes from the European Center for Constitutional and Human Rights (ECCHR), which believes the over-reliance on social audits and the quantification of measurement ignores actual improvement to working conditions in factories. Social audits, it says, "are at best a diagnostic tool."

Its research paper on the 'Liability of Social Auditors in the Textile Industry,' suggests labour, health and safety audits allow retailers to claim they are meeting their obligations but offer no incentives to change their purchasing practices. Indeed, it goes so far as to suggest that brands, factory owners, and auditing companies should all be liable in the event of a factory accident.

Improvement focus first

Both analyses suggest the "code-of conduct-monitoring-compliance" approach – the centrepiece of current private governance efforts – as currently practiced, is in need of reinvention. 

"Audits are characterised more by a verification focus than an improvement focus, and compliance has peaked in many factories. Further, audits are increasingly a routine, commodified and relatively inexpensive exercise, which are outsourced to third parties, and occur over too short a time frame to uncover many problems or analyse the root causes of compliance issues. Moreover, there are a variety of negative incentives that affect auditor behaviour and limit audit effectiveness," explains the New Conversations Project.

"Finally, we see little to no evidence of a relationship between audit scores and real conditions in the factory, nor do we see evidence to suggest that the process of compliance auditing is integrated into the business strategies of brands and retailers in a way that adequately incentivises and rewards compliant factories."

The group also believes transparency and collaboration are important ingredients of an integrated approach.

"Research suggests that greater transparency among supply chain stakeholders can encourage sustainable improvement in factory compliance. In addition, there have been long-standing calls for greater collaboration among buyers (especially in multi-brand factories) in order to realise sustainable improvements in the working lives of factory workers.

"Our Project seeks to identify how the overarching principles of transparency and collaboration can meaningfully inform the search for more sustainable supply chains. While current efforts to develop common auditing tools and common auditing standards are a step in the right direction of greater transparency and collaboration, our view is that auditing is only one component of the integrated approach needed to effect meaningful change."

Initial research will be focused on developing and evaluating an integrated approach to private governance based on stable buyer-supplier relationships, responsible sourcing practices, and meaningful auditing. This research will involve brands who have indicated willingness to participate and will share a variety of data to help us evaluate existing as well as new more integrated approaches.

Flaws in the system

The ECCHR assessment, meanwhile, notes that an increased emphasis on labour and human rights means international retailers require audit certificates from factory owners as a pre-condition for a commercial relationship – and that certification schemes conducted by private audit firms have proved "the most alluring."

But it also points out that disasters ranging from the factory fires at Ali Enterprises in Pakistan and Tazreen in Bangladesh to the collapse of the Rana Plaza building have revealed flaws in the system: "Certifiers financed by the very same businesses they have to assess are bound by contradictory incentive structures. Ultimately, certificates generate a high level of trust while incurring almost no legal risk."

The report continues: "Social audits are thus part of the problem rather than a solution, providing minor remedies while upholding a neo-liberal framework and legitimising endemic features of global supply chains." It adds that different auditing schemes have issued a plethora of auditor guidelines, manuals and standards describing in detail what exactly is expected of an auditor during a factory visit and in writing the report.

Given that this situation is unlikely to change, "new legal and regulatory pathways are necessary to challenge both the performance and integrity of auditors and certifiers," including a focus on auditor liability as a minimum condition for future audits, including the payment of compensation.

However, auditor liability will not necessarily lead to improved working conditions – which is the ultimate aim – and the payment of compensation is certainly not the first objective since it would imply that a tragedy has occurred.

Rather, auditor liability is seen as a key to leading to changes in the relationship between retailers, factories, workers, and auditors.

"Using liability mechanisms should in particular be part of a wider strategy of local and international unions seeking to change the power imbalance between international buyers and auditing companies and local unions and workers in the production countries."

Overhaul

This is not the first time that an overhaul of the approach to inspection reports on factory safety and working conditions has been sought – with several initiatives already working to try to reduce the amount of money the industry spends on duplicated auditing and, instead, invest in improving social welfare for apparel workers.

For instance, the Sustainable Apparel Coalition's Social and Labour Convergence Project aims to develop a new, harmonised industry standard for social and labour compliance, with input from companies such as Nike, H&M and Levi Strauss & Co.

And PVH and VF Corp are among those leading the Global Apparel, Footwear and Textile Initiative (GAFTI) to bring retailers and brands together to try to agree a single standard against which supplier factories can be audited.

GAFTI has estimated that around $2bn is spent by the industry each year on audits, a burden largely borne by suppliers in order to comply with the demands of different customers. Separate figures suggest major retailers carry out up to 4,000 audits each year, and in China alone around US$1bn is spent annually on auditing.

Others believe that buyer purchasing practices – such as late design changes that require the factory to use excessive overtime to meet delivery deadlines –­ contribute to the problem of supplier compliance with codes of conduct, poor wages and working conditions. Still in its early stages, the Better Buying initiative will collect anonymous ratings from suppliers about specific buyers' practices; with this data shared with the buyers in a bid to drive improvements.

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