EY - Human rights and professional wrongs

Human rights and professional wrongs

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Following widely publicized human rights scandals in the early 1990s, corporations, dominated by those in the footwear and apparel industries, invested heavily in social compliance programs to enforce a minimum standard of human rights and employee health and safety throughout their supply chains.

On the contract manufacturing side, social compliance programs took a generally consistent form:

  • A corporate social compliance function that owned the corporate social compliance standard: policies and procedures stipulating the minimum standards to be met by contract manufacturers and procurement personnel
  • Regional social compliance officers that oversaw the implementation of the standard at the factory level
  • Third-party certification agencies that performed the bulk of on-site auditing to assess individual factory compliance against the standard and draft the necessary corrective action plans (CAPs)

The result is an enormous volume of factory auditing that over time has converged into a highly standardized approach across corporate compliance standards, supply chains and verification agency audit methodologies.

Although recent events have placed the attention of this issue on the apparel and smartphone industries, the issue of human rights is a growing imperative for all companies whose supply chains extend to developing countries.

One might expect that given the pervasiveness of corporate social compliance programs and the volume of audits being performed that the evidence of egregious human rights abuses in corporate supply chains would be diminishing. If anything the opposite may be true.

Based on numerous media exposes, as well as our own field assessment work, it is increasingly clear that while in some sectors issues such as child labor have shown improvements, on the whole the social compliance industry has struggled to drive progress worthy of the investments made and the risks faced by brands and employees alike.

What are the challenges with corporate social compliance programs?

  • A checklist approach to social compliance auditing that is skewed toward the detection of clerical errors and health and safety questions with yes/no answers — often failing to assess the actual health and safety culture within an operation or the root causes that underpin non-compliances
  • Too many criteria to allow companies the opportunity to meet a minimum standard of compliance
  • An over-reliance on verification agencies whose practitioners, though often excellent, often also possess limited experience in human rights assessments beyond the parameters of their audit protocols
  • A limited appetite of compliance auditors to look beyond their audit protocols to pursue suspicions of fraudulent or inaccurate representations on the part of factories and factory agents — commonly including doctored books, undisclosed outsourcing and coaching of employees in their responses to auditor questions
  • Limited stakeholder engagement beyond factory walls to obtain an independent picture of factory conditions
  • Tolerance of agents and intermediaries providing incomplete factory listings to downstream companies
  • Social compliance standards that have not been updated to reflect the changing demographics of labor forces
  • Procurement processes that allow company personnel to circumvent the social compliance standard and raise purchase orders for factories that have not had their human rights status assessed

What needs to change?

  • Companies need to use third-party certifiers and auditors more strategically.
  • Procurement systems need to be tightened to prevent orders from being placed with factories that have not had their social compliance status assessed.
  • Agents and intermediaries need to be brought in line with the social compliance expectations of retailers.
  • CAPs need to pursue cultural as well as visual change.
  • Corporations need to incorporate the consideration of human rights much sooner in the business cycle.
  • Companies need to maintain longer relationships with a smaller number of suppliers.
  • Apparel retailers need to start a conversation with their consumers regarding the price of human rights.

A reassessment of the effectiveness of a social compliance program needn’t be exhaustive. Instead, it should take a risk-based approach — reassessing human rights risk in contexts where risk is greatest (such as migrant workforces, least-developed countries, excessively manual processes).

Where possible, assessments should be performed using unannounced audits by an experienced, multidisciplinary assessment team, which in many instances can draw extensively on internal resources, in particular, quality assurance, human resources, legal and internal audit.

For more details, including questions the board should be asking officers, download our document Human rights and professional wrongs: rethinking corporate social compliance in the supply chain (pdf, 1mb).