What are a company’s “codes of conduct”? How does a company monitor factories in the supply chain? What is an audit? Answering these questions will help explain how companies can work together to improve the monitoring process.
A company is also known as a brand or purchaser. In this article, “company” will be used for simplicity. A factory can also be a supplier and these terms will be used interchangeably.
A company sets “codes of conduct” to address labor issues and guide employee behavior and responsibility. Ethical and social responsibilities in the workplace are often a focus.[1] A company’s codes of conduct are established internally by companies themselves or by external organizations such as the Fair Labor Association (FLA) and the Business Social Compliance Initiative (BSCI). A company’s codes of conduct often attribute underlying principles to the UN Declaration of Human Rights and the International Labor Organization (ILO) conventions that establish international human and labor rights.
Codes of conduct address the following labor issues: (1) employment standards, (2) health and safety, and (3) the environment.
Employment standards address issues such as forced labor, child labor, freedom of association (the right to organize and bargain collectively), and fair and equal treatment (freedom of harassment and discrimination issues). It also includes wages and benefits, working hours, and disciplinary practices.
Health and safety covers safe working and/or living conditions. This includes but is not limited to proper lighting, adequate toilet facilities, accessible fire extinguishers, and training in the handling and use of chemicals.
Environment draws attention to a factory’s impact on its surroundings. A company that is concerned with the environment may have more stringent environment requirements. Some require factories to eliminate toxic and hazardous substances from products and production process. Less concerned companies only require proper waste management and waste disposal.
Generally, codes of conduct do not differ greatly from company to company. Michael Kobori, Vice President of Supply Chain Social and Environmental Sustainability, states, “80% of the language is the same.”[2] Here are a couple examples codes of conduct from leading apparel companies which are available online: Adidas “workplace standards” and Timberland’s codes of conduct.
Different companies’ codes of conduct cover many of the same issues, however monitoring practices can vary from company to company. Marianne Voss, Executive Director, Fair Factories Clearinghouse points out, “the language is not that different, the difference is in implementation.”[3] There are various ways a company can monitor labor practices in factories. There are no universal standards for monitoring practices, which leave a lot of room for interpretation.
Monitoring and verification is a way to monitor labor practices in factories. The audit is a measurement tool to evaluate factory compliance with a company’s codes of conduct at a specific point in time.[4] A traditional audit requires a team of auditors to visit a factory premises either announced or unannounced. The auditing team meets with factory management and often interviews a number of employees. The audit document asks a range of questions some that require tick-box answers. Where remediation is warranted, further explanation may be required. A factory audit can be carried out by the company, an intermediary, or external auditors such as Societe Generale de Surveillance (SGS) and Bureauveritas. An audit can also be paid for by all of the above actors or the factory itself. To get a sense of what a traditional audit asks, check out the Outdoor Industry Association’s fair labor and social compliance toolkit.
Remediation takes place when a factory is found to be in non-compliance with a company’s codes of conduct. A corrective action plan (CAP) is devised for the factory to make corrective changes. Capacity development requires resources to develop training programs and often depends on the strength of the business relationship between the company and the supplier.
Stakeholder engagement is when a wide range stakeholders, companies, suppliers, international non-governmental organizations (INGOs), non-governmental organizations (NGOs), and governments, develop solutions in the monitoring, verification and remediation of factory labor practices. Stakeholder engagement can bring attention to underlying labor issues and initiate change through collaboration.
Multi-stakeholder initiatives come out of collaborative efforts from companies across multiple industries, labor unions, INGOs, NGOs and government actors to facilitate change. Coalitions such as the Ethical Trading Initiative (ETI) and the Fair Labor Association (FLA) work towards better labor standards by developing codes of conduct and principles member organizations commit to implementing in their supply chain. Membership in multi-stakeholder initiatives demonstrates an organization’s values to consumers and non-consumers.
Industry initiatives are when companies in the same industry work together towards sustainable supply chain management and improved factory workplace standards. In the electronic industry, the Electronic Industry Citizenship Coalition (EICC) requires members to commit to and implement its codes of conduct and management systems. In the toy industry, International Council of Toy Industries (ICTI) has established the CARE compliance program for toy factories to participate. Toy factories that apply to the CARE program must pass an audit to receive certification of compliance annually.
Accreditation and certification are monitoring practices that are voluntary or member-based and require companies and/or factories to be accountable to standards set by advocacy groups. For instance, the Worldwide Responsible Accredited Production (WRAP) has a certification program for member apparel factories to monitor for “lawful, human and ethical manufacturing.”[5] Social Accountability International (SAI) aims to improve working conditions through certification and training programs for both company and factory management. SA8000 is a voluntary management certification available to both companies and factories that emphasizes improved social performance in the supply chain.
Root cause analysis is another way to evaluate working conditions by examining management systems. This process examines the life-cycle of a worker to identify where remedial action is required. The life-cycle of worker includes hiring, wages and hours, management, disciplinary actions, pensions, and firing or quitting. Nike is using root cause analysis to complement traditional audits and identify underlying labor issues.
Current trends in monitoring practices focus on information sharing between companies that use the same factories. “Brand collaboration” has the potential to improve the compliance process by eliminating duplicate audits and reallocating resources to remediation and training. Fair Factories Clearinghouse is a non-profit organization that provides software to support online information sharing to allow purchasers, intermediaries and suppliers to manage and share factory audit information and other data on monitoring practices, remediation, and training programs. Finding ways to make the compliance process more efficient and to make companies and factories work together more effectively is not only good for working conditions but it is also good for business.
