The quest for efficacy in Social Audits : 5 KSFs
Talking of the Status Quo
Social Audits refer to Supply Chain Compliance Audits that are conducted by companies [usually through third party audit organisations] in order to ensure that the people employed down the supply chain, especially in today’s outsource-everything business reality, are treated fairly and humanely. This is to mean that they are being employed in a manner that ensures adherence to local legal standards by way of providing minimum wages, safe working environments, within health and environmental guidelines, etc. This mechanism, albeit it came in late, is gaining wider and wider acceptance by the day. However, there is much left to be desired yet, as has been seen time and again — be it the Rana Plaza incident in Bangladesh three years ago, or the recent one at the Matrix Sweater Factory (Gazipur, Bangladesh) where it was by chance that a fire started when workers were yet to come in, or the one in a garment factory in India where close to 100 workers were suspected to be have been trapped.
Since these incidents that I have sighted squarely fall in the Textile and Garment Industry supply chains, let me also reiterate that this industry is one of the frontrunners in the Social Audit programs as well, and that a lot of Audit activity has been going on in the Indian Subcontinent [as well as China] in the recent years. But still, something has to give, right!? I mean, some of the biggest Fashion behemoths of the world source heavily form this region, and in light of the flack that the GAPs and H&Ms of the world have been facing recently on Sustainability and Ethics of their supply chains, surely companies like them must be doing something on an urgent scale to remedy this, right?
Well, the answer in Yes and No! For one thing, there has been a lot of genuine interest [as well as action] towards improving the situation. And as much as the media likes to demonise these Fashion & Retail Houses, let us first understand and accept that the situation is quite complex, and not one that can be remedied with the flick of a switch. I am a citizen of on of these countries (viz. India), and have in fact steered a Social Audit program in the geography for one of the most socially conscious global business groups, for two years. Apart form the commercial entities, there have emerged n number of industry and trade organisations developing standards and certifications and audits to make things right. [We worked with one of the most comprehensive international standards, the SA8000.] As much as we would like to change the world, countries like India, Bangladesh, China, etc. have their own peculiarities and complexities that make it difficult for even the most adherent suppliers to make things a 100% right.
Systemic Issues — The vicious twosome
For one thing, corruption in these economies is a major problem that dissuades many a willing manufacturers from implementing certain norms and obtain relevant certifications. Having a legacy broken system, it is indeed true that to some extent it costs them more to adhere and get involved with x number of more Government Agencies [and thus seek their “approvals” cyclically]. So as you must have guessed it, what feeds the corruption further, is the complexity of thelegacy administrative infrastructure which contributes to both bullying as well as oversight (as the case may be) by the Government Officials. For the fear on the former, local businesses (i.e. the local Supply Chain partners of the MNCs) often prefer to take advantage of the latter, with the help of loopholes and some smokes and mirrors — of which there is no shortage.
Another overbearing problem is that of Poverty. Poverty reflects in a sub par awareness [brought about by lack of education]. The lack of education in these geographies (or pockets thereof) is often due to lack of resources, but often by the virtue of poverty itself. Many a people in these economies (esp. in the Indian Subcontinent) still live Below Poverty Line and thus, for these individuals, it is a graver question than that of “affording” an education in the monetary sense alone — affordability is also defined by the ‘opportunity cost’. The loss is not just of money that needs to be allocated to an education, it is also the money that one forgoes [working as a child labourer for eg.] whilst attending school, even if the education were free per se.
This the vicious cycle of poverty that engulfs most of the ill-aware populace which forms a major chunk of our Unfair Global Supply Chains. For these people who live from day to day, there is little to care about than meeting the dietary needs. These vulnerable people are exploited by middlemen, labour contractors, and local businesses — and inadvertently (and sadly), by us, as consumers! We surely cannot continue to afford our affluence, upon their misery.
Grappling the problem(s) on the Business end
So does this mean that businesses get a clean chit? Not at all. If nothing else, one thing that we have got right in this mess is that we have somewhere acknowledged the fact that we have the power to make things right. And this is the greatest power, the power of trade, that of Demand — as it drives our businesses, so does it drive the economies. However, lately, businesses do seem to have somewhere lost the will to make a difference. We setup CSR activities and let it be done with. However, there is much more potential impact we can have on the society if we internalise CSR, rather than making it yet another cost centre (same with HR — though a topic for another day).
5 KSFs to bring about a real change
Following are 5 Key Success Factors (KSF) that I believe can help us get the ball rolling, and rolling really fast, in the present scenario:
1. Moving beyond the “Risk” approach
The key issue where we have failed to honour the seriousness of the Social Compliances is by defining them as mere “Compliances” that need to be met. This moves them into the category of Risk Management. Which in itself is not a bad thing to begin with, but more often than not, restricts them in the KRA (Key Result Area) of a certain bucket of company stakeholders (viz. Supply Chain and Finance Controllers for most part). This has led to a culture wherein the [rest of the] organisation ends up feeling that “The Social Audit guys need to take care of this.” See how short-sighted and tactical this makes things? Social Compliances need to be integrated in the Culture and Conscience of the organisation from the Top-Down. This is to say that working with a non-compliant supplier should be a no-go for you, no matter who you are and what you do in the organisation. Not because it is an image-risk or a legal-risk or a monetary-risk, but because you do not do business with such suppliers — period! Also, a team always performs better than an individual, doesn’t it — then why not work together on a good cause?
2. From “Shareholder Value” to Stakeholder Value
Profit Maximisation, which was fancifully relabelled as Maximisation of Shareholder Value, needs a desperate makeover as well — wouldn’t you agree? Even after having hired the smartest people and the highest-paid consultants, isn’t it a bit odd that nobody cares to calibrate the archaic definition of Shareholder Value? Now, being a business graduate myself, I would not go as far as saying that Stock Price is irrelevant, it certainly is. Although, to an extent; because Stock Price has to be a component, and not the sole indicator of it. How can we move towards measuring the shareholder value such that it reflects sustainability and ethics, [in addition to share price and employee satisfaction, amongst other things]? Perhaps, we can make it more inclusive and comprehensive by pegging the organisational performance toStakeholder Value instead. This would mean, measurement of value brought by an organisation to various stakeholders in its business environment — this includes the society and nature!
[Note: Though a business can certainly bring about this change, and that it should, it also begs the broader and substantive attention of the investor, consumer and regulatory publics at large to drive the point. No doubt!]
3. Getting rid of “Rubber Stamp” audits
Once we have a Top-Down buy-in across the organisation, the next logical step is to infuse the organisation with a sense of ownership towards Social Audits. Too often today, the organisational stakeholders responsible for social audits conduct it form what I would like to call a “Rubber Stamp” perspective. This means that they are merely looking for their supply chain allies to pass out of the audit with acceptable results, sometimes by hook or by crook. Now, I am not saying this is true for all, but certainly for too many to be disregarded. This unfortunately then translates into the supply chain partners also not taking the Audits as seriously; they rather treat it like a school examination that they need to pass once and then don’t have to worry about for another semester. This leads to situations where some stakeholders go to the extent of trying to control the outcome, rather than the process — not the desired objective, was it now? And this is why we time and again find ourselves in situations where a certain ‘Amce Zoe Pvt Ltd’ was found to be “complaint” only yesterday, and has a fire in its factory the next morning. (A little exaggeration to make a point, of course.) This practice [rather mentality] needs to be curbed.
4. Industry as a Changemaker
Howmuchever anyone may hate or debate it, but there is certainly no denying that business holds a considerable amount of power in the world today. Some multinational businesses make more in Annual Revenues than than GDPs of entire nations. Trade is at the centre stage of the global economy. We have seen how interconnected and small the world is when the recent Financial Crisis in the US dragged the whole world into a depression. Where the magnitude of global trade and finance has it perils, it must certainly have its advantages to the same extent! We should take advantage of this fact and lobby with Governments via multilateral organisations and home Governments, to make changes in the business environments of key partner economies, of the US and the Eurozone. Personally, I strongly believe in the power of commerce to change people’s lives — by way of economic development, having a domino effect. Only thing is, once we hit the first domino, there is very little one can do about the rest. Therefore, hopefully we realise this in time, before the rest of the dominos fall on their face.
5. Managing the Interim — Strengthening the Audit Mandate
Although the last point on this 5 KSF checklist, this one is by far the most important. The challenges and issues mentioned above are rather systemic and/or cultural: there is no quick-fix for either of those. They shall require social prudence, dedication, as well as time, in order to be actioned. And during this time, it is quite important to understand what can be done on the ground level to help move the cause forward. From my personal experience, I humbly believe that though some good standards and guidelines are already in place, it is crucial that there be more sensitisation to their measurement. It is just as detrimental to have uniformity as it is to have flexibility in controls. As we argued earlier in Point 4, the rubber stamp approach leads to passing audits for the sake of it. On the other end of the spectrum, there should be a homogeneity of measurement and accreditation systems independent of local regulation. This certainly does not mean foregoing checks on the law of the land. But what if there was a parallel and universal checking standard despite the same?
For example, in an imaginary situation, a Supplier may say that the Fire Department’s permission for a new facility is in process. This may either be true, or an avoidance tactic. It may lead to one of two outcomes [depending on the Audit Standards] — either there is a Non-Compliance noted, or there may be an award of Compliance, basis of the application receipt. The problem, as you may see with what I have presented above is, things are too black and white — and in the countries in question above, often times businesses and administrations operate in the greys. But of course, an Audit is always conducted in the Black and White. Now what? Why not have a parallel Fire Safety Evaluation and Accreditation System with the Auditor itself?
Thus, what I am talking about here is making the standard or audit mandate itself more aggressive and powerful such that it can deal with anomalies in the local systems, as and when presented-with. Continuing with the above example, let’s say that the Fire Department’s permission is available and current; however, the local Fire Safety Standards perhaps are not strong enough in that country. If we were to rely on local norms only, it can certainly be surmised that the risk has not been addressed, although one might find compliance with law of the land. However, once it is established by companies that they will follow a uniform audit charter [unless surpassed by local law in rigour], there is a lesser likelihood of things not measuring up. Plus, it also stands to bring comparability.
In Conclusion
I sincerely believe that we can already see a huge difference already and systemically (over the next five years), if we were to go in this direction. It is a pure Win-Win!
P.S.: I would love to hear different perspectives, experiences and learnings form different countries and industries that you may have. Please do share.