As supply chains have grown in complexity, a sizable monitoring industry has emerged, designed to assess human rights risks at suppliers to many companies. Codes of conduct, factory audits and certification schemes are now widely used to fulfil human rights due diligence obligations, and to provide a level of assurance to, managers, boards and stakeholders.
However, a growing body of evidence indicates that current monitoring systems are not very effective at protecting workers or providing an accurate assessment of risks. Companies need to start considering whether their monitoring systems are giving them a false sense of security about supply chain risks—and are exposing workers to human rights violations.
Three questions serve as a good starting point for companies reviewing or launching risk management efforts, whether domestically or internationally.
How serious are your competitors about respect for human rights?
This might seem like an odd place to start, but in many industries—especially when suppliers compete intensely for B2B customers, or when companies share suppliers—the behaviour of the industry as a whole impacts human rights conditions in any individual supplier.
If your industry generally has a history of talking about human rights compliance, while for example, negotiating unreasonable prices and production timelines, then it sends a clear message to suppliers that your industry does not take human rights compliance seriously. This “trust gap” can undermine your human rights due diligence efforts, as suppliers may not take your efforts seriously.
Companies need to consider what history has taught suppliers about your industry. It may well be that decades of experience have taught them that cutting corners on human rights in order to meet price and time pressures is the only way to survive—and that “monitoring” systems are designed to not look too closely at what’s really happening.
A range of civil society and academic reports been published describing how both suppliers and workers perceive the behavior of lead firms in supply chains. These are an excellent place for companies to start assessing the environment their due diligence efforts need to operate in.
How reliable are your company’s assessments?
The most basic form of human rights due diligence is the inclusion of contractual language obliging suppliers to adhere to a code of conduct. The degree to which suppliers take such language seriously varies enormously, and needs to be considered carefully—particularly in industries, as noted above, where trust between suppliers and customers is weak.
Human rights auditing and factory certification were designed as a stronger form of monitoring, and have been common in some industries like garments and electronics for more than 20 years. However, audit quality is notoriously uneven, with some commercial audits consisting of a half-day “checklist” exercise, while others involve multi-day assessments and offsite worker interviews.
Professor Sarosh Kuruvilla, who directs the New Conversations Project at Cornell University and is a visiting professor at the London School of Economics, has been examining the human rights monitoring systems that have emerged in supply chains.
Kuruvilla argues that one of the main problems with monitoring systems is that companies do not share their results, leading to an “opaque” monitoring environment. “At this point, it is very difficult to collect and compare audit findings and compliance with contractual language across supply chains. If companies shared their monitoring results, we would have a much better picture of what’s really going on in different industries. We don’t really know which forms of monitoring give an accurate picture under which conditions and in which locations.”
He also notes: “Different companies implement auditing differently, and use differing rating systems, so it is possible that one factory may receive an excellent rating in one day and a poor rating on the next.” As a result, there is little consistency in how factories are rated over, for example, a whole year of audits. His research has also found that some 40% of factory audits in some countries are simply unreliable because the data given to the auditors was falsified or incomplete.
“More importantly, we don’t know if the current monitoring practices actually improve outcomes for workers—because we have no way to compare their results. We hope to see more companies realising that the benefits of sharing their data to allow benchmarking by researchers outweighs perceived reputational risks.”
Kuruvilla also warns: “Given what researchers know from the information we have been able to analyse, many companies in many industries should question the reliability of the data they base their risk assessments on.”
How do your company’s monitoring results compare to stakeholder risk assessments?
Given the opacity of monitoring, and potential trust gaps with suppliers, companies that are serious about human rights should triangulate their findings with assessments by stakeholders. Trade unions, NGOs and multi-stakeholder initiatives all publish information assessing a wide range of risks in various industries and countries. The Business and Human Rights Resource Centre is an excellent place to start.
If, for example, stakeholders warn that excessive overtime is common in an area your company sources from, but your monitoring results indicate very low levels of excessive OT, an honest risk assessment needs to consider the reason for this discrepancy.
Does your company’s supplier really have excellent workflow management? Was your audit simply not very good? Or has your supplier been incentivised by its history with other companies to rely on excessive overtime to manage production pressures—and then to find ways to hide it from the auditors?
Ten years after the publication of the UN Guiding Principles on Business and Human Rights, and following decades of civil society reporting on supply chain risks, businesses increasingly find that “we didn’t know what was happening in our supply chain” is no longer an acceptable response to stakeholders.
Meaningful human rights due diligence will require a reassessment of how reliable common tools actually are, and what should replace them when they fail to perform.
Martin Curley is co-founder of Katalyst Initiative, which works to improve governance and human rights in the clothing industry.