Companies are starting to complain
that supply chain auditors are failing to drive improvements. EP looks
at a sobering assessment by the Ethical Trading Initiative
As an assessment of the present state of ethical supply chain
auditing, the Ethical Trading Initiative’s latest study on the subject
could hardly be more damning.
The report, Getting smarter at auditing,
was compiled as a précis of the thoughts of 45 ETI members at a meeting
in London on 16 November. It paints a bleak picture of multinationals
struggling against the odds to bring about change in their supply
chains while often ineffective commercial auditing firms fail to do
their job properly.
The ETI – a UK-based alliance of companies, non-governmental
organizations and trade unions that aims to improve working conditions
in the supply chain – has been refreshingly frank in the past two years
about what the report’s subtitle calls the ‘growing crisis in ethical
trade auditing’. Here it is at its frankest ever. In essence, members
at the November meeting – which included Asda, Boots, Monsoon, Next,
Sainsbury’s, WH Smith, Tesco and The Body Shop – argue that third party
social auditing firms are making such a bad fist of their work that
many companies would get a better service from in-house teams, over
which they have more control (see page one).
The ETI says a consensus now exists on the elements of good auditing,
which should include offering local expertise, open-ended questioning
and off-site, confidential worker interviews. There are many examples
of excellent work, but in general the scene is ‘dominated by
poor-quality auditing’, and there is a ‘yawning gap’ between good
practice and what happens on the ground. One participant at the meeting
said most auditors were getting ‘money for old rope’.
According to the report, auditing firms are unreliable, expensive,
often fail to find or report serious labour problems, frequently miss
fraudulent practices and sometimes collude in hiding them. ETI members
admit in-house auditing is not perfect but say that third party
auditors – used by most companies – are ‘by and large considerably
worse’.
Audits, which typically account for 80 per cent of companies’ ethical
trade budgets, still often fail to uncover discrimination and
violations of trade union rights, and ‘even the previously more visible
non-compliances, such as excessive working hours and poor wages, are
escaping auditors’ eyes’.
The ETI says many corporate ethical trade managers are now coming round
to the view that in-house auditing is preferable to using third party
commercial auditing firms. But there is strong pressure from NGOs, the
media and institutional investors to use external auditors, as
‘external’ is seen as synonymous with ‘independent’, and therefore more
credible. As a result, ethical trade managers are often not given the
option by their bosses of using an in-house audit team.
Stuck with using outsiders, they then chase a ‘very limited’ supply of
high-calibre, qualified third party auditors with the right
working practices and a commitment to change.
Too often, the report claims, they end up with the services of
inadequately trained auditors from firms where ethical trade auditing
is not a core activity. If they threaten to withdraw their business
unless improvements are made, ‘both the client and the auditing firm
know they don’t have anywhere better to go’.
It is little wonder, then, that the ETI talks openly of crisis. It
does, however, see several ways forward, even for those companies that
feel unable to bring auditing in-house. Companies could, for instance: 
concentrate on fewer, better-quality audits, even if this leaves some gaps in monitoring become more closely involved in deciding an audit’s form and content and ensuring that remedial work is carried outemploy specific auditors individually, rather than leaving the contracted auditing firm to select monitoring staff.
These are relatively short-term measures. In the longer term, says the
ETI, member companies of ethical supply chain groups need to
jointly create a set of audit standards and protocols, and a system to
enforce them. A common training and certification programme and a
system for regulating auditor behaviour could then be developed.
Whether this solution will be accepted by auditing firms is another
matter. Tim Sleep, director of the retail practice at Ernst & Young, told EP that he was against such moves because
ethical auditing covers such a wide area and needs to retain
flexibility. ‘There’s no way you can ask a small retailer to have the
same standards of audit as a larger one with bigger negotiating power
and more resources,’ he says. ‘Ethical trade auditing is a recent
phenomenon. Inevitably, as this area grows the industry will get more
used to what’s recognized and valued in this field. Auditing is
specific to each retailer or company, depending on how in-depth they
want to be and how much commercial advantage they want to extract from
it.’
See also Editorial Comment
