Are social compliance audits really necessary? What are the risks of not considering social compliance?
In an earlier article, we responded to the commonly asked question, “what is a social compliance audit?” Steve Mogentale, head of Client Services at InTouch, offered insight into social compliance audits first in a video segment of Interview with an Expert, then in an extended podcast interview. In this article that covers part two of the podcast, Steve tells us why manufacturers and importers should care about social compliance audits.
Why do you need to audit suppliers for social compliance?
Steve: Well, really you need to be auditing your suppliers because there isn’t anyone else that is doing it for you. So if you’re concerned about meeting some sort of minimum ethical sourcing requirements you really need to be doing the audit checking for that. You really need to be making sure that the employees are being paid fairly, that they’re being paid on time and the working conditions are reasonable.
What are the risks of not conducting a social compliance audit?
Steve: I would say that there are three key risks and the first is you just don’t know who you’re working with. Is it a supplier that follows the law or is it a supplier that is cutting all kinds of corners to increase profits at the expense of its workers? The second reason is that if you’re working with another party like Walmart, and you’re supplying to them – or Target or Disney – if you’re not auditing them you don’t know if your suppliers can actually meet those brand or retailer requirements. So if Walmart says, “okay, we need to do an audit of your factory,” now you’re in a situation where you don’t know if you can pass or not. If you don’t pass, in most cases, you’re not going to be able to ship your order. The third reason is basically just reputational risk. In late 2012 in Bangladesh, one of Walmart’s suppliers had a very significant fire, and it resulted in the building collapsing and over 100 people died. And because Walmart merchandise with Walmart’s logo was found there at the scene, it just blew up in Walmart’s face. It was a terrible PR disaster and nobody wants to be associated with a factory burning down and innocent people dying. So one of the ways you can avoid all of those issues to begin with is by regularly auditing your suppliers and checking for the kinds of things that can lead to those tragedies.
Do you think the Bangladesh incident has had a major effect on the number of regulations introduced into manufacturing and the number of social compliance audits conducted these days?
Steve: Absolutely. I was at InTouch at the time when that news broke, and we saw a huge uptick in inquiries just about, “what can we do? What are the rules?” It really brought to light how little people knew about social compliance, how we check for it, what the standards were and what their obligations were as suppliers to Walmart, even. So, in light of that incident, Walmart issued a lot of new mandates for its suppliers, and it totally changed the auditing landscape.
Do you think social compliance audit will contribute to a positive change on the horizon for manufacturing and the way workers are treated?
Steve: Absolutely. Doing a social compliance audit is very invasive and it involves doing private interviews with factory employees. So when you’re asking an employee, “are you satisfied with your job? Do you like the meals? Is there anything that you would like to see management do differently?”, and they know that those answers are private, psychologically, they’re thinking, “do I really like what I do here?” or “do I like my Boss?” They’re thinking about these things, and I think that does slowly, albeit probably somewhat measurably, trickle down throughout society over time. So, yes, I do think that the social compliance auditing process and also just how seriously it’s beginning to be taken here definitely has a social effect.