Moving Beyond Social Compliance

Most companies, even if they do not have a "CSR department" have a program in place to monitor social compliance in their global supply chains. For these companies, it is important to protect their brands' reputations by ensuring that the factories manufacturing their goods, often in developing countries, respect workers' rights, pay legal wages and abide by environmental legislation. It's also often from these departments that companies develop a more holistic CSR strategy.

I've spent the past two days in Ho Chi Minh City at the Better Work Vietnam International Buyers' Forum.  The Better Work program is described as:

"... a unique partnership between the International Labour Organization (ILO) and the International Finance Corporation (IFC).  It unites the expertise of the ILO in labor standards with that of the IFC in private sector development."

That's not a very telling description, but basically it's an effort to develop a sustainable, industry-wide mechanism to promote stronger industrial relations and good working conditions for garment factories in targeted countries (Vietnam, Cambodia, Jordan, Haiti).

Today, apparel retailers have different codes of conduct that they expect their contract factories to adhere to as a condition for doing business. To ensure that these factories are upholding the expectations expressed in these different codes of conduct, retailers employ auditors (either company employees or third-party audit firms) to visit factories and check conditions against their respective codes. With many retailers sharing the same factories, you can imagine that factories are visited dozens of times each year by auditors and out of each visit comes a list of "corrective action plans" for the factory to implement in order to remain in good compliance with retailers' codes.

This approach creates an environment where factories seek to solve specific problems in preparation for the next audit, but they may not take the time to understand root causes of non-compliance. Instead of understanding why they're unable to control overtime hours, factories may look for short-term solutions in order to "pass" the next audit.

The Better Work program seeks to shift the dialogue away from "auditing" and "monitoring" to truly finding long-term, sustainable solutions to poor factory working conditions.  In addition to conducting factory assessments (similar to a typical audit, but much more detailed and thorough), Better Work provides factories with consulting services and training (both for management and workers) in order to build factories' capabilities to manage working conditions and industrial relations.

Furthermore, retailers that subscribe to the Better Work program, agree to stop auditing factories and rely instead upon the Better Work assessments for insight into factory working conditions. This alleviates the factories from repetitive auditing and the International Labor Organization provides a credible approach that provides companies with the confidence that factories are being held to internationally accepted labor standards.

To me, it's a win-win situation, but these past two days have highlighted some challenges to broader adoption of this approach. Companies have had social compliance audit programs in place for decades and some are unwilling to let go of their own programs. People who represent companies and auditors have a vested interest in seeing the current environment prevail (They may fear for their jobs.), so they're not necessarily interested in promoting an industry-wide practice. Companies insist that their standards are stricter than the ILO standards and are unwilling to compromise on some points in order to support the Better Work framework.

The Better Work program has its work cut out for them, but I'm hopeful that retailers will embrace this approach more fully and the industry can move beyond the never-ending cycle of social compliance audits toward an internationally accepted, industry-wide system that focuses on the most important goal: improving the lives of garment workers.

The Independent, Third-party Factory Audit

We employ a third-party social compliance audit firm to conduct social and environmental audits of our factories. In some cases, the purpose of these audits is to check our primary auditor's performance and in others, we rely entirely on these third-party audits. Through using a third-party audit firm, we aim to introduce a neutral party to avoid conflicts of interest and to ensure that we bring in an impartial perspective that does not have a financial stake in our relationship with the supplier.

On Friday, I accompanied our third-party audit firm for a shadow audit in China. It was the first time I'd visited a factory with a neutral party (instead of a company-appointed representative or a company employee) and it proved to be fairly educational.

From the outset, the tone of the visit was very different. Usually, auditors have a pre-existing relationship with factory management. The auditors have been to the factory before, they've worked together over the years and it's a collegial, if not friendly, relationship. With a third-party audit firm that has no previous relationship, the visit has a much less friendly tone.  It's strictly professional and both sides clearly are assessing each other throughout the visit.

The factory staff seemed much more nervous than on other audits I've shadowed. It could have been because this was the first time we had ever asked the factory to be audited, or it could have been my presence, representing a customer. Whatever the case, the entire day took on a much more formal environment than I was used to.

When it came time for lunch, the factory management team offered to take us to lunch, but our audit firm steadfastly refused. Typically, I will break bread with the factory managers to build our relationship and to discuss matters like production levels, hiring challenges, compliance issues, etc. in a more casual setting. Our audit firm has a policy to have lunch on its own, again to avoid any conflicts of interest.

And in the closing meeting, when we typically discuss next steps, corrective action plans and timing for implementation, we ended up pointing out the violations we'd found and leaving it at that.  We cannot guarantee that the audit firm will return to ensure that the corrective action plans have been implemented. In some cases, companies will send their own representatives to ensure follow-up. In this case, we could only say what we'd found and the conversation never turned to remediation or true improvement.

Friday's visit really highlighted for me some of the shortcomings of the third-party audit system. I still believe they play an important part of any social compliance program, but to rely completely on them would probably not truly work toward improving factory workplace conditions.

Our CSR Summit

Earlier this week, we hosted a CSR brainstorming session to help three of our C-level executives understand some possibilities of infusing our brand with a more "socially conscious" angle. We invited in several CSR experts and a few CSR practitioners from other consumer-facing companies.

Prior to the event, I spent several weeks trying to convince people from my network to spend a few hours on the Tuesday morning after Labor Day with us in New York City. Understandably, people didn't commit to flying across the country for our meeting, but we did manage to get some strong representation from the New York area.

I also spent time in healthy debate with a marketing VP, whose role is to ensure that we project the appropriate brand image to external guests, including the type of food we have catered, the vases of white hydrangeas placed throughout the room and the color of the foam core (silver or white) we were allowed to use behind flip charts! She wanted bottled water, I insisted we get pitchers. She wanted to use a beautiful trash receptacle, I suggested recycling bins. In the end, since I'm not based in the New York office, she got her way. Despite saying she'd honor some of my sustainability requests, our meeting had bottled water and no recycling (among other things). As expected, several of our CSR guests commented on the "opportunities" to host a more sustainable meeting.

But the meeting itself went better than expected. We had a very robust dialogue, surfaced some exciting possibilities and I think everyone in attendance felt inspired by our brand and its potential connections to the planet and to communities.

The problem we have now is how do we take these ideas and this momentum and bring it to life? My job is to continue to push this work forward, but we don't have the appropriate resources to accomplish everything we discussed. Our Chief Supply Chain Officer pledged that he would debrief with his executive peers and our CEO to get a better sense of priority and I hope we'll then be able to work on a strategic plan to put some of this work into action!

Instead of Stating the Case Against, How About Re-defining the Case For?

Warning: I’m on the defensive.

Yesterday’s Wall Street Journal ran an article called “The Case Against Corporate Social Responsibility” that purported CSR as dangerous for society because it presumes companies are wrong to take on social welfare issues. These issues, the article argues, belong under the purview of government or civil society.

Since I work in CSR, it should come as no surprise that I find this argument flawed. I agree that social welfare issues fall under the jurisdiction of governments and civil society, but why is self-regulation a bad thing? In some cases, companies that self-regulate can set an example for how governments can introduce effective and practical government regulation. In others, CSR as self-regulation is in direct response to the concerns of civil society – the exact response that this article argues is “irrelevant” for companies to pursue. And yet if companies ignore these concerns, they expose themselves to risk - risk that can have a material impact on company operations and profitability.

I’m also troubled by the presumption that pursuing private profits or public interests has to be mutually exclusive. It’s not a zero-sum game and companies that want to be profitable often have to take into account how public interests impact their operations. At the risk of sounding like a cliché, there really are win-win situations.

But you’ll probably be surprised to hear that I actually agree with a lot that the article posits. The author describes a few examples of cases where company interests are aligned with public interest: fast-food chains expanding into healthier food markets, the development of fuel-efficient automobiles. The article characterizes these examples as cases where positive social impact is a by-product of a company singularly pursuing profit. In my mind, these are great examples of how managing CSR strategically has led to more innovation, market capture for companies and greater shareholder value.

It’s my opinion that companies can manage CSR strategically in order to become better-run enterprises, in order to recognize emerging risks and stimulate innovation in order to stay competitive in a dynamic marketplace. These are not concepts that are at odds. It’s only when companies mis-manage CSR or don’t seek alignment between CSR efforts and overall company strategy that they seem to sacrifice profits for social well-being or vice-versa.

I don’t know many CSR managers who advocate for companies to abandon their profit motives in order to chase the “greater good.” We all know that we’re working for companies with responsibility to shareholders. Our work aims to find the impacts our companies’ core business competencies and operations have on society and the environment and either mitigate these impacts or transform them from potentially destructive to productive. This approach does not require sacrifice – just a slightly more enlightened view of the interplay between business and society.

The Travel Bug

Friends, I apologize for my lack of posts, but I've been all over the place during the past few weeks. Part of what I enjoy most about my job is the opportunity to visit different parts of the world and learn about communities and cultures to which I've previously had no exposure. But when you have those moments when you wake up and your first thought is, "Wait, what country am I in again?" it may be a bit too much.

So, to make writing this post easier, I'll organize my recent travels by location:

Istanbul, Turkey
After a long night of flying, I arrived in Istanbul with several of my Supply Chain colleagues for a vendor summit. We've been working with more and more vendors in the Middle East and Mediterranean region, so we decided to host a formal day where we could get to know each other better.

Representatives from about 30 vendors, suppliers and partners showed up and we gave them a thorough overview of our business, our brand and our supply chain strategy. I spent some time discussing our factory compliance program and shared with them the CSR vision and strategy I've been working on. It's not quite "approved" yet, but it was great to explain to our partners that CSR will be more than just compliance. Our company will be looking for ways to create value from CSR and it's essential our partners understand where we're going.

Casablanca, Morocco
After the vendor summit, four of us traveled to Casablanca and visited a number of factories around Casablanca. We've already been working with one of the factories, but this was an opportunity to tour new factories to see whether or not they have the capability to work on our product. From my perspective, I had the chance to see factory working conditions firsthand and provide my input into potential suppliers.

Furthermore, meeting with Moroccan factory owners gave me the chance to dive into a strange Moroccan labor law with which I was pretty unfamiliar. The law has the potential to negatively impact overtime payments, and in extreme cases could be perceived as a form of forced labor. But because it's the law, we have to work with our suppliers to understand ways to make sure workers fully understand their rights.

Amman, Jordan
Continuing on our tour of potential factories to work with, we headed to Jordan to tour several factories. From a social responsibility perspective, I concentrated mostly on the topic of foreign workers - people who have come from other countries like Bangladesh, India and Sri Lanka to work in Jordan for several years. These foreign workers are especially vulnerable to discrimination, abuse and potential cases of forced labor, so it is important for us to learn more about how we can protect their rights.

Biella, Italy
After visiting factories, we headed further upstream and met with textile and yarn suppliers in Italy. For me, it was an education in seeing how yarn is spun from wool and how fabric is woven from threads. It was pretty fascinating and I learned a lot about the impacts that our upstream suppliers have.

One of the most interesting things I got to see was a fully automated dye house. Dyeing yarn can be one of the most toxic and environmentally unfriendly processes, but this particular facility had a state-of-the-art, computerized contraption that required only one person to operate the entire process. And thanks to technological advances, it not only limited human exposure to toxic dyestuffs, it also used less water to dye yarns and highly curbed the amount of effluent released by the process.

New York, NY
After a few days at home and back in the office, I headed down to New York to visit employees in our New York office. My main purpose was to meet with members of our Marketing team and to meet with a consultant, but I easily filled my time there with additional meetings on a variety of topics.

It's always good to meet with my colleagues face-to-face and a quick trip to New York is always worthwhile to build relationships.

My friends and family get excited when I talk about upcoming trips, but to tell the truth, I didn't have any time to do any sightseeing in all the countries I visited. Over the course of two weeks, there were only three days where I wasn't on a plane, and when I wasn't sleeping or visiting our partners, I was usually in a car or a van, traveling from one point to another.

I guess this means I'll have to go back to visit these countries and save some time to actually see some of the sights!

We Are the World

Everyone talks about the "global economy" and how business is linked with the various countries around the world - either as commercial markets or as sourcing markets. In all my CSR positions, I've had the opportunity to consider the world beyond my own country borders, but never have I had to dig as deeply into country information before my current position.

I sit squarely in our supply chain organization and am focused on helping the company consider entry into and exit out of different countries from a sourcing perspective. And I'm now in the middle of a "country risk assessment" project where I've been tasked with assessing the risks of doing business in those countries where we're currently sourcing and those under consideration.

It's an interesting project and I get to learn about countries like Mauritius and Jordan, but it's been a laborious piece of work as well. Each country requires several hours of research and of course there are many other pressing demands on my time. I've started to engage external purveyors of country risk analysis to see if I can streamline the research process and am now in the position of receiving approximately 20 e-mail newsletters a week that alert me to macroeconomic shifts in different countries around the world.

The problem with these research and information sources is that I simply don't have time to filter through the wealth of information out there. And most of these sources don't do a good job of narrowing down available information to make it easily digestible or relevant to my industry. My full-time job could be to sift through information about China, but unfortunately, I have other things to do.

As I pull these country profiles together for an upcoming meeting (one that's far too close on the horizon), a growing concern is how I'm ever going to keep these profiles current and how I will be able to manage ongoing communication of their contents to my colleagues. It's a weird responsibility, being the keeper of country risk information - and one that I'm not totally convinced plays to my strengths.

After all, how does one person stay abreast of all the economic and political developments in several dozen countries, while considering all the potential implications on our supply chain and business? There has to be an easier way!

The Holy Grail?

I've spent the past few weeks tweaking a new tool to rate our suppliers on social performance. It's never going to be "perfect," but it's at a point where I think it's workable.

Ever since before I started working in CSR, I'd heard social performance metrics described as "the holy grail." Professors grandly alluded to the possibilities of tying "hard social metrics" to financial performance and building a stronger business case for CSR. Of course, no one suggested that social metrics would demonstrate that CSR does not have business value. That outcome would simply mean the metrics were "wrong."

In any case, I don't know whether or not we'll ever get to the social metrics that hard-core CSR professionals and academics seek. What I do know, however, is that people in other parts of my company need an easy way to understand CSR performance and I need to develop something that gives us directional insight into social performance. As it stands, my metrics system doesn't provide an absolute grade. The important part is that it serves as a springboard for discussion.

And my point in introducing these metrics into our company vocabulary isn't to help our contract factories strive for perfection. When it comes to social performance, it's about continuous improvement and metrics can help describe relative performance between entities or over time. I just hope my business partners understand that I want to provide these metrics in a certain spirit - to cultivate ongoing feedback, dialogue and improvement.