'End-to-end visibility': Reinventing how companies root out worker abuse

The Rana Plaza building collapse in Bangladesh in 2013 was a wake-up call to consumers and retailers alike. At least two of the factories in the building, where over 1,100 garment industry workers were killed and over 2,500 injured, had passed social compliance audits that failed to expose or fix dangerous working conditions. Over a year after the disaster, despite promises of reform by both government and corporate officials, many garment factory workers in Bangladesh are still campaigning for better pay, safe working conditions, an end to 14-hour workdays, and benefits like on-site child care and maternity leave.

Corporations use social compliance programs in order to operate ethically in emerging economies — and in the process avoid potentially costly disruptions to complicated international supply chains. Born in the early 1990s out of the backlash to human rights violations in developing countries by footwear and apparel companies, these programs were designed to establish and maintain standards of employee health and safety. The Global Social Compliance Program and the Business Social Compliance Initiative are among the major programs working today to improve and monitor social and environmental standards across industries.

Two decades on however, the effectiveness of these measures has been thrown into doubt, with headlines around the world regularly reporting on human rights abuses across industries, from disasters like Rana Plaza to mass suicide attempts on smartphone assembly lines, child labor for chocolate and slavery in the seafood sector.

An 'illusion of progress'

On the issue of child labor, there has been remarkable progress, with numbers globally dropping by one-third between 2000 and 2012, according to the International Labor Organization.

But a recent report by Ernst and Young finds that social compliance programs have been hit and miss on the whole in solving social and environmental abuses. The result has been an illusion of progress — companies are lauded for setting high standards even as actual conditions remain unaddressed.

Additionally, many of the countries that feature as top destinations for foreign investments have long histories of coups and riots. Civil unrest in local communities — where the factories operate — can lead to responsibility for vicious crackdowns being laid at a corporation’s doorstep, even when it has received government approvals to operate.

“Multinational corporations are particularly vulnerable to allegations of complicity in human rights abuses, due to their complex supply chains,” explains Alyson Warhust, CEO of global risk analysis firm Maplecroft.

Maplecroft's latest “Human Rights Risk Atlas” notes that since 2008, key growth economies — Iraq, Nigeria, China, Bangladesh, India, Colombia, Philippines, Ethiopia, Indonesia, and South Arabia — have all experienced rising human rights violations.

Passion fruit initiative makes change from ground up

Chiquita Brands was responding to these sorts of supply chain risks when it moved its passion fruit business from Ecuador to Costa Rica four years ago. The problems it encountered in Ecuador included a fragmented market of suppliers, price fixing by middlemen and unscrupulous trading agents who took advantage of the growers.

“We knew nothing about the farms where the fruit came from or the conditions that existed there,” said George Jaksch, Chiquita's senior director for corporate responsibility and public affairs. “We could not be certain, for example, that child labor standards or environmental standards related to the use of fertilizers and pesticides were being upheld on these farms.”

Since 2010, Chiquita has been running a “small grower initiative” in collaboration with the Costa Rican government to create “end-to-end visibility” in the supply chain — a secure and transparent supply of passion fruit for Chiquita, as well as stable living wages and improved living and working conditions for farmers and their communities.

The company offers growers two-year contracts with guaranteed prices for crops, as well as guaranteed payment within a week of delivering produce (rather than waiting for months for compensation). These measures give farmers — accustomed to an ad-hoc market — financial security and stability. The initiative also offers farmers training in sustainable agricultural practices and support to increase fruit harvests while maintaining a quality level acceptable to Chiquita.

Chiquita also works with the Rainforest Alliance, an environmental advocacy group, to certify its growers. The nonprofit's involvement creates a layer of transparency that bolsters the credibility of the initiative — and by extension Chiquita — with consumers and human rights advocates, while also providing farmers with additional training in sustainable agriculture.

The small grower initiative seems to be succeeding: Rainforest Alliance recently blogged about the positive experience of a veteran small farmer, Gerardo Jiménez, with Chiquita's reforms. In 2013 the company won a juice industry award for “developing the passion fruit small-grower initiative to improve the resource efficiency, minimize carbon footprint and to better share economic benefits throughout the supply chain”.

Chiquita’s initiative suggests that when thoughtfully adapted and improved, corporate social compliance programs can succeed at reducing risk and improving business all around.

200m new jobs needed

Despite the unsolved problems with human rights and other abuses, overseas investments have created jobs for millions of workers in developing nations, who might otherwise find their employment options extremely limited. The International Labor Organization recently estimated a need for around 200m new jobs in emerging economies, a shortfall that can't be solved without foreign investment.

In Bangladesh, where the economy is still recovering from the 20% hit it took in the 1971 war for independence, the garment industry has helped swell annual growth rates 7%. The sector employs close to 3.6 million people, mostly women, in jobs that would likely not exist otherwise.

With foreign investment unlikely to slam to a halt, social compliance programs as they stand today might thought of as starter kits for creating ethical supply chains. They need to be remade to better dampen risk and root out abuses.

Taking change off the page and into reality

Ernst and Young suggests that a major shortcoming with most current social compliance programs is that they take a “checklist approach” that emphasizes completing paperwork over conducting thorough audits.

As well, often the programs rely on third-party auditors who are inexperienced at assessing human rights abuses, seem reluctant to scratch below the surface for suspicious activity, and often lack of understanding of the differences in labor force demographics across countries.

To move beyond meeting the minimum standards on paper while failing to create any real change, Ernst and Young's report recommends initially decreasing the complexity of the compliance program, largely by developing fewer but more holistic criteria to identify and address root causes of violations. These could include increasing the transparency of supply chains upstream as well as downstream of a workplace, as Chiquita has in Costa Rica, in order to get more of the people nominally protected by a social compliance program involved with making it work.

Another major recommendation is consolidation of suppliers, with a focus on developing long-term relationships. This could help a company’s social strategies and values take root within the different stages of the supply and production process.

However they seek to reform their social compliance programs, Maplecroft's Warhurst says that firms operating in developing nations ignore taking change off the page and into reality at their own peril.

“Business investment is deeply rooted in emerging economies and many of these countries are affected by social tensions,” Warhurst says. “A decline in the human rights risk landscape is not only an unacceptable situation; it is also a forecaster of political risk and business disruption.”

Aishwarya Nair is an environmental consultant based out of Calgary, Canada. She has a masters in energy policy and environmental management from the University of Pennsylvania and has worked in private equity, focusing on energy projects.

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