Working for corporations, but failing workers and the planet

The Rana Plaza building collapse is the deadliest structural failure in modern times. It was home to factories manufacturing clothes for fashion chains such as Primark, Benneton and Mango. rijans under a Creative Commons Licence

Ethical supply chain audits can enable business as usual under the veneer of corporate responsibility, write Genevieve LeBaron and Jane Lister.

In recent years incidents such as the collapse of the Rana Plaza garment factory in Bangladesh in April 2013 and the exposé by The Guardian of slavery and human trafficking in the Thai shrimp industry in 2014 have focused attention on the supply chains of global corporations.

What has been reported less is that both of these incidents, and many others, took place within ‘certified’ and audited supply chains. The Thai shrimp in British supermarkets had been ‘ethically’ certified by an NGO that sets voluntary standards for the certification of agricultural products and encourages producers to adopt ‘safe and sustainable practices’. Similarly, in Bangladesh the Rana Plaza factory, which made clothes for Matalan, Primark and Walmart amongst many others, passed a compliance audit just months before it collapsed.

Many key questions and serious concerns hang over the ethical audit regime. These include: are audits effective in identifying non-compliance and driving up standards, what does the audit regime mean for governments and NGOs, where does power lie within the audit regime and, ultimately, in whose interest is the ethical audit regime working?

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To monitor and verify standards, NGOs have developed transnational ‘sustainable production’ certification standards, such as the Rainforest Alliance certification, Marine Stewardship Councils and Fair Labour programmes.

These certification standards are voluntary and rely on private audits, designed and paid for by corporations, to assess standards. NGOs have also increasingly partnered with firms to develop bespoke voluntary programmes: Greenpeace has worked with Coca Cola to reduce greenhouse gas emissions and Oxfam 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. This auditing regime comprises company codes of supplier conduct, voluntary certifications, standardised metrics (e.g. the Higg Index for ‘ethical’ clothing) and aggregated indexes for comparing corporate environmental and social performance (e.g. the Global Reporting Initiative).

Corporations can choose whether to use independent third-party auditors or in-house auditors. Third-party auditors are generally deemed more neutral and hence legitimate, but even third-party auditors are not impartial. Walmart, for example, applies its own criteria for selecting a list of whom it deems ‘acceptable’ auditors.

Auditors are bound by rigid confidentiality clauses and clients exercise full discretion over what audit information is reported. Auditors produce standardised metrics and rankings that give the appearance of transparent and neutral monitoring; yet the information audits provide is selective and fundamentally shaped by the client. Information about abuses and non-compliance is rarely made available to governments or consumers and, as such, they are rarely resolved.

Auditors typically offer advice to help factories prepare action plans to address non-compliance findings. However, auditors have no influence over a company’s eventual business decisions; their advice can be ignored; and there is no external accountability for the action plans.

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Corporations have embraced Corporate Social Responsibility (CSR) goals and ethical audits as an opportunity to preserve their business model and take responsibility for supply-chain monitoring out of the hands of governments. Corporate adoption of CSR has brought the ‘supply chain ball’ back into their court, and away from governments.

Through the presentation of active monitoring and ‘continuous improvement’, corporations have been able to deflect pressure for stricter state and international regulation that might otherwise curb business growth. This enables the preservation of existing business models and profits.

Adopting ethical audits has also enabled corporations to position themselves as responsible companies. This helps drive sales as retailers increasingly recognise the importance of ‘eco’ and ‘ethical’ products for consumers. A 2013 study of 1000 brands found that 28 per cent of brand value relates to corporate social responsibility.

The increasing use of private audits to monitor supply chains is serving to restructure the global regulatory system to privilege the private interests of business growth, profit and market advantage over the public interest and social goods of improving labour standards, general wellbeing and ecological protection. In a nutshell, the audit regime is ‘working’ for corporations, but failing workers and the planet.

The increasing use of audits as a tool of governance is bolstering corporate interests and influence over consumers and policymakers and, ultimately, deepens corporations’ power to make their own rules and norms and evaluate and report on their own performance.

Whilst audits give the impression of active supply-chain monitoring and ‘continuous improvement’, the regime actually reinforces endemic problems in supply chains. It deflects pressure for stricter, state-based regulation and legitimises unsustainable global production models – in particular, a retail economy that promotes consumption and environmental degradation.

Through voluntary certification programmes, and with state support, the structural problems within the audit regime – deception, failing to detect or ignoring problems within supply chains, and a compliance mentality – are being swiftly institutionalised within global governance mechanisms.

Genevieve LeBaron is a senior lecturer at the University of Sheffield. Jane Lister is senior research fellow at Sauder School of Business. This article is taken as excerpts from the 2016 Global Political Economy Brief, ‘Ethical Audits and the Global Supply Chains of Global Corporations', published by the University of Sheffield.