Social audits in the textile industry: How to control the controllers?
This blog is part of our series on Beyond Social Auditing.
The collapse of the Rana Plaza building complex in Dhaka, Bangladesh on April 24th 2013 is one of the most well-known disasters in the textile industry. What not as many people know is that two factories in the building went through the Business Social Compliance Initiative (BSCI, now Amfori) auditing process, the largest labour standard compliance initiative, before the collapse, and that no possible workplace safety risks were identified. Similarly, a few weeks before the fire at the Ali Enterprises textile factory in Pakistan in September 2012, the Italian auditing company RINA issued the factory with a SA 8000 certificate – a marker of high fire safety standards developed by the not-for-profit Social Accountability International (SAI). Yet despite their key role in legitimizing supply chains, the responsibility of social auditing companies and compliance initiatives has too often been overlooked.
Since the 1990s, outsourcing of production in the textile industry has accelerated. This, along with an increased emphasis on labor and human rights, led international retailers to begin commissioning social audits and/or requiring certificates from factory owners as a precondition for a commercial relationship. In the absence of effective factory inspection by state authorities, which often lack adequate resources to conduct rigorous inspections, and in light of the weakness of trade unions due to restrictions and repression, monitoring the labor, health and safety situation at workplaces is thus frequently done by private audit firms.
Disasters such as the Ali Enterprises fire and the collapse of the Rana Plaza building have, however, tragically revealed a number of flaws in the current practice of private certification: independent and diligent audits seem rare and require, at best, a sort of ‘checklist compliance.’ Whereas agreements on price, volume, delivery date and product quality are contractually enforced, codes of conduct and the accompanying audits are viewed as extra-contractual tools.
‘There is no greater power than a purchase order. The power relation begins and ends with the buyer’s signature. All the rest that floats around it is talk. ... Until your buyer says you care [about the environment and workers] in the purchase order, you don’t care’
Another typical shortcoming of social audits is that problematic choices about the audit scope are all too often hidden behind seemingly technical choices regarding their design. For instance, the auditing firm TÜV Rheinland claimed that it was not asked to inspect the safety of the Rana Plaza building structure. Subcontracting factories are also generally excluded from auditing procedures. Certifiers, financed by the very same businesses they have to assess, are bound by contradictory incentive structures. Certificates generate a high-level of trust within supply chains and, ultimately, with consumers, while incurring almost no legal risk. Who takes responsibility for the content or impact of audit reports is not defined. As these are generally not made public, there is no way for interested or independent parties to oversee the audit process or assess its accuracy. And workers – who are the supposed beneficiaries of the whole auditing enterprise – have no means of verifying such reports or holding auditors accountable.
In short, the responsibility of social auditing companies has not received sufficient attention. For example, none of the auditing companies that conducted social audits in the factories donated to the Rana Plaza Trust Fund. Similarly, while KiK paid compensation to the Pakistani families after an agreement with the ILO, auditing company RINA refuses to do so. The auditing companies hide behind claims that they are merely providing a service to their clients.
Frustrated with the lack of remedy offered through the BSCI complaint mechanism, in May 2016, the Bangladeshi Garment Workers Unity Forum, the Comrade Rubel Memorial Center, the Rana Plaza Survivor Group as well as ECCHR, FEMNET and medico international from Germany filed an OECD complaint against TÜV Rheinland for its failure to notice the presence of child labor, lack of freedom of association, risks of building safety, and disciplinary measures against the workers in its audit report for a factory in the Rana Plaza complex.
However, despite improvements in National Contact Point (NCP) proceedings, serious obstacles remained for the affected in Bangladesh to be part of the negotiations. During the two-year pending mediation the complainants were not allowed to engage in "campaigning". This puts complainants at a disadvantage as they cannot build pressure on the public, while companies can drag out the negotiations long enough for everyone to have exhausted their resources. Experience in other OECD proceedings in other countries has shown that media attention is crucial to obtaining remedy. Furthermore, the German NCP did not publish its initial assessment.
Although TÜV Rheinland broke off the negotiations while the text of the final agreement was already being drafted, the German NCP’s Final Statement could pave the way for fundamental reforms to social audits. The NCP recommends a dialogue with audit companies, standard setting organizations, brands, factories and trade unions to address issues including the transparency of audit reports and whether factory owners should pay for audits. Moreover, the NCP took a clear stance on measures audit firms could already implement, such as the stronger involvement of worker representatives.
While welcoming the NCP’s strong recommendations, in personal conversations with the authors, labour organisations in the garment industry in Bangladesh and Pakistan voiced concerns about the inherent limits of private audits. Unduly flattering certificates are a real concern. If a social audit report fails to signal instances of non-compliance with social and safety standards, lead firms may continue to source from these suppliers without engaging them on these issues and implementing measures urgently needed to protect workers. Without clear and accessible mechanisms for transparency and accountability, audits thus risk harming workers instead of benefiting them.
Despite criticisms, for the moment at least social audits seem to be here to stay. As audits are increasingly adopted by companies to fulfil their human rights due diligence obligations, transparency and liability should be minimum conditions. Essential to any system that claims to ensure quality audits is a mechanism ensuring deficient audits are identified and penalised. This should involve independent workers’ organisations and workers. Without access to audit reports, trade unions, workers and communities cannot independently verify whether auditors identified all instances of non-compliance with relevant standards.
Auditing firms or compliance initiatives can pave the way for accountability by enshrining third-party beneficiary rights for factory workers. In this way, a simple and direct legal remedy is provided to those factory workers that social audits are meant to benefit. This can be done easily, for example, by creating a clause in the contract that auditing companies sign prior to performing an audit allowing workers to claim for damages if they suffer harm but an audit failed to identify relevant safety risks. A non-performance or deficient audit (i.e. lack of competence of the auditor or lack of complete or verifiable documentation) then constitutes an actionable breach of the contractual obligations of the auditing company. In addition, a reversal of the burden of proof can be agreed upon. If an auditor fails to identify major non-compliances, the auditor would then have to prove that relevant professional standards were adhered to in order to avoid liability.
The demand for accountability should not only come from workers. Lead firms can hold their auditors liable as well. While at the moment they have little incentive to do so, this might change if and when they face legal claims for injuries due to abusive working conditions in their supply chains. A remarkable example here is the recent move by retailer KiK to hold auditing companies legally liable for findings in their report. Auditor liability can contribute to necessary changes in the power relationship between lead firms, suppliers, workers, trade unions, communities and auditors. Efforts towards enforcing accountability should raise questions about the misleading scope of audits, draw attention to unduly flattering audit reports and criticize the lack of implementation of audit recommendations – thus revealing the mechanisms that currently perpetuate the status quo in which audits are carried out but social and environmental outcomes fail to improve.
 As OECD Watch points out: “Academic research has indicated that one of the barriers to NCPs being more effective is power imbalances in mediation. NCPs should be conscious of the fact that overly strict restrictions on campaigning during a specific instance can exacerbate power imbalances, to the detriment of the NCP’s effectiveness in helping parties resolve the issue at hand. Requiring commitments from complainants to refrain from speaking out publicly about the company and the ongoing case (if this is done in a way that respects the confidentiality of information exchanged during the process) directly undermines the existing power of the less powerful group” (Meeting of the Network of National Contact Points for Responsible Business Conduct, 18 December 2017, p.16).