Who Audits the Auditor?: Shaping Legal Accountability Strategies to Redress Social Audit Failings
Current due diligence efforts by companies have not been enough to prevent labour exploitation. One reason is that companies overly rely on social audits1 to identify labour abuse in their supply chains, despite well-documented shortcomings. For example, social audits only provide a periodic snapshot of a situation, rely on the superficial participation of workers (instead of ongoing and meaningful rights-holder consultation) and don’t take into account root causes of abuse, such as purchasing practices that deny workers a living wage.
Rather than address inequalities, social audits help maintain the status quo by disempowering workers. By contrast, ensuring a Just Recovery demands transformative action through rights-holder centric due diligence and effective remedy for violations.
Ultimately, social audit failings mean that human rights abuses are often not identified or reported. This is disastrous for workers as these few, of many, examples illustrate:
- 26 separate audits conducted at the Hansae company’s facilities in Vietnam failed to identify violations of local law and health and safety hazards, meaning that working conditions failed to improve;
- A social auditing firm audited Ali Enterprises textile factory in Pakistan a few weeks before a fatal factory fire in 2012;
- A social auditing firm reported the construction quality of the Rana Plaza building as “good” just months before the building collapsed in 2013; and
- None of the 28 audits conducted at Top Glove factories in Malaysia detected indicators of forced labour, despite accounts of exploitation.
The prospect of embedding the human rights due diligence standard in law (at international, regional and national levels) would represent long overdue action by states to mandate companies to introduce effective due diligence processes and so fulfil their duty to respect human rights. This also provides the perfect opportunity to explore strategies for holding liable the social auditing firms that enable and profit from social audit failings.
Bringing legal claims against social auditing firms for inaccurate audits is an emerging focus of corporate legal accountability actions. In 2015, survivors of the Rana Plaza building collapse brought civil proceedings against auditing firm Bureau Veritas for allegedly failing to conduct reasonable audits and inspect the building’s structural integrity. In 2016, the Ali Enterprises Factory Fire Affectees Association in Karachi and the European Centre for Constitutional and Human Rights (ECCHR) filed a request for a criminal investigation against auditing firm RINA for failing to detect fire safety risks when auditing the Ali Enterprises factory.
The Business & Human Rights Resource Centre has published extensive expert commentary on social audits and recommendations for going beyond social auditing. We are now building on spearheading research on the liability of social auditors by ECCHR to convene lawyers and legal advocates to explore premises for auditor liability.
Depending on the jurisdiction, social auditing firms may have existing legal duties towards workers which, if breached, could be a source of liability. For example, large French auditing firms have obligations (and corresponding civil liability) under France’s due diligence law to individuals harmed by their activities. If applying UK law, social auditors may owe a duty of care to workers, which has repercussions for liability risk.
The social audit contract could itself give workers a right to sue the auditing firm. Ideally, this right would be enshrined in the audit contract. Even if not, courts might, in certain circumstances, interpret the contract to give workers implied third-party beneficiary rights.
Reflecting more broadly on corporate abuse lawsuits, a question for courts in negligence actions, for example, will be to assess the reasonableness of a company’s steps to prevent harm. How will courts assess a company’s use of social audits against the reasonable care or due diligence standard given the evident weakness of the model?
Looking forward to the prospect of mandatory corporate human rights due diligence, auditing firms, in their capacity as companies, would have a legal obligation to identify and address salient human rights issues. This should mean auditing firms identifying issues potentially beyond the terms of the audit contract, which courts found in proceedings against Bureau Veritas to limit the scope of the firm's duty of care to workers.
Further, companies’ (including auditing firms) human rights duties should require social audit reports to be made public (as a right to information). This would finally allow workers to verify whether social auditors accurately identified workplace risks and violations.
Regulating the social audit industry and ensuring legal avenues for accountability are vital steps to ensure that social audits (keeping in mind the systematic limitations of the model) are not used as a substitute for comprehensive human rights due diligence.
The Resource Centre will be publishing a summary of our research on prospects for social auditor liability later this year. We hope that our research can be a basis for legal action against the companies that carry out inaccurate social audits, and so fail workers, the very people the audit purports to protect.