The record of failure and fatal flaws of CSR factory monitoring
By Garrett Brown, MPH, CIH
Coordinator, Maquiladora Health & Safety Support Network

Whenever the latest scandal breaks in global supply chains – worker suicides and aluminum dust explosions in Chinese electronics factories, deadly garment factory fires in Bangladesh and Pakistan, or child labor in toy factories in Asia – the international brand name companies and retailers promise (yet again) to “ramp up” monitoring of working conditions and labor law violations in their supply chains.

Yet more than 20 years of corporate social responsibility (CSR) monitoring – “social audits” by “independent, third party monitors” of corporate codes of conduct – have failed to detect unsafe and illegal conditions, have failed to correct unsafe conditions that have been observed, have failed to engender any long term changes in factory conditions, and failed to even identify where and by whom the brands’ consumer products are being made.

While CSR monitoring has been a spectacular failure at improving working conditions, it has been largely successful in the brands’ priority issues of providing brands with the claim of a “good faith effort” to improve working conditions in their supply chains, and with the essential public relations spin that “everything is under control and getting better.”

Fatal flaws of CSR monitoring

CSR factory monitoring has been fatally undermined by three factors: first, lack of expertise in most areas of concern; second, factory auditing is now multi-million industry with its own set of profit goals; and third, there are the inescapable conflicts of interest inherent in the monitoring relationships.

The first ten years of CSR audits were done by financial accountants who had experience and expertise in bookkeeping, but none in occupational safety and health, or evaluating freedom of association issues, or in social discrimination and the impacts of work organization on workers’ lives. Major accounting firms, such as PricewaterhouseCoopers (PwC), first sent accountants to do “social audits,” and, later, many firms spun-off the CSR monitoring to form independent companies or subsidiaries.

The financial accountants, with no training or experience in OHS or social organization issues, used general checklists and interviews with employer-selected employees to verify compliance with CSR codes. Then MIT Professor Dara O’Rourke, now at UC Berkeley, accompanied PwC auditors in Korea and China in 2000 and wrote a detailed report on how non-financial issues went basically unevaluated in the audits (see box for reference information). On the other hand, O’Rourke witnessed the PwC auditors providing helpful tips to factory owners on ways to disguise problems with time cards, overtime pay and other financial accounting issues.

Effective monitoring is difficult to do even with adequately trained and motivated inspectors. In her 2008 book The China Price, Alexandra Harney, former Financial Times correspondent, details the ingenuous ways suppliers have developed to mislead CSR monitors in China.

There are the “fabrication engineers” who routinely generate multiple sets of financial, wage and hour records, customized to meet the CSR codes of any client. There are the clean, quiet “trophy factories” where auditors and visitors are given guided tours, and the “shadow factories” around the corner where the production is done but no inspector ever visits. And then there is the coaching (and threatening) of workers to ensure they know what questions they may be asked and what the “correct” answers about pay, over time hours, or working conditions are.

In 2009, John Ruggie, the UN Secretary-General’s Special Representative for Business and Human Rights, told Women’s Wear Daily that “Just about everyone, at least off the record, will tell you that monitoring doesn’t work and auditing of supplier factories doesn’t work, because people cheat.”

Secondly, as CSR auditing became a business in its own right, profiled in The Economist and Forbes, monitoring companies developed their own profit projections. To maximize profits, the CSR auditing firms depend on low-paid, lightly-trained inspectors who spend short amounts of time in any facility ticking off items on a standardized checklist, so that they can rapidly move on to the next plant and increase the auditors’ accounts-payable invoices.

T.A. Frank, who spent several years conducting audits factories producing for international brand retailers, wrote up his experiences in 2008 in a Washington Monthly magazine (see references) article titled “Confessions of a Sweatshop Inspector.”

Several CSR firms have discovered the real money is in charging to train other inspectors, who will conduct the actual on-site visits. Social Accountability International (SAI) developed its own CSR code – “SA 8000” – and makes its money training employees of other companies to certify that their clients’ plants as “compliant with SA 8000.” SAI has made millions of dollars over the last decades producing SA 8000 auditors who work for consulting companies worldwide.

In August 2012, the Italian firm RINA Group, using their SAI-trained auditors, gave the Ali Enterprises plant in Karachi, Pakistan, a clean bill of health and a SA 8000 certification. Three weeks later, 258 workers were killed in a fire where workers were trapped behind locked doors and barred windows after damaged electrical systems ignited improperly stored flammable materials in the “SA 8000-certified” factory.

A similar thing has happened with “Occupational Health and Safety Management System 18000” (OHSMS 18000) certifications issued by for-profit third party auditors. In March 2012, the Fair Labor Association (FLA) conducted inspections of three Chinese factories operated by Apple-supplier Foxconn. The FLA inspectors noted (see references) that the Fu Tai Hua factory in Shenzhen had received a OHSMS 18000 certification despite having a management-only health and safety committee that never met, conducted no inspections, investigated only a handful of accidents, had no worker participation, and had no lockout/tagout program or adequate hazard communication program in highly mechanized factory using numerous hazardous chemicals.

Thirdly, third party monitors of CSR codes and factory working conditions have overwhelming, inherent conflicts of interest in conducting their watchdog role. As attention on global supply chain working conditions increases, retailers and brands that rely on contract manufacturers are under intense scrutiny. The brands need positive reports of conditions – a few, minor problems, or problems all being resolved. The for-profit consulting companies providing CSR audits have every incentive – if they want to keep their clients in a very competitive market – of providing monitoring reports that meet their clients’ needs.

The December 26, 2012, front-page article in the New York Times about alleged improvements in Apple’s Chinese electronics factories is a good example of a PR whitewash where virtually the only sources of information about changes are the electronics companies themselves and their corporate-funded CSR consultant, the Fair Labor Association.

Industry-organized CSR organizations – like WRAP in garment and ICTI CARE in toys
– have all the usual codes and monitoring, but near-zero credibility with anyone. Multi-Stakeholder Initiatives (MSIs) involving brands/retailers and non-governmental organizations have more credibility, but just as significant conflicts of interest. The Fair Labor Association, for example, is funded by the very corporations (now including Apple) that the FLA is supposed to be monitoring.

A history of failure

Major brands and retailers in consumer goods sectors all claim that their global supply chains are “subject to a rigorous system of inspections” by in-house and third-party auditors. Apple claims to have inspected 800 factories since 2007. Walmart says that in 2011 alone it (directly or via CSR auditors) conducted 9,737 inspections in 8,713 factories. Sports equipment, garment, toys and electronics companies all claim to have “robust” monitoring in place.

Yet the list of audit failure over the last decade is a very long one, including:

• 2005: The Spectrum Sweater factory in Bangladesh collapses, killing 64 workers, after the owner added five floors to the four story building without engineering plans or building permits. European retailers had repeatedly audited the plant in the year before the collapse while the construction was underway

• 2008: The Hytex factory in Malaysia was found to be engaged in human trafficking by confiscating the passports of migrant workers from Burma, Bangladesh and Vietnam and forcing them to work off their “recruitment fees” before returning the passports. Nike, which had sourced form the factory for 14 years and conducted dozens of CSR audits, conducted their last inspection in February before the August scandal broke.

• 2010: The Garib & Garib Sweater factory in Bangladesh had a fire that killed 21 workers who could not escape the blaze started by electrical short circuits because of locked fire exits and blocked hallways. The factory had been repeated monitored by CSR auditors, including by the giant Swedish retailer H&M whose monitors last inspected the plant in October 2009 before the February 2010 fire.

• 2011: Apple suppliers in China had two explosions caused by aluminum dust, despite repeated CSR audits by Apple and CSR consultants. The first fire in May killed four workers and seriously burned 15 more in Chengdu. The second explosion in December occurred just hours after a CSR inspection of the plant in Shanghai, injuring 59 workers, including 23 hospitalized for burns. Despite four fatalities in May, the same hazardous conditions were allowed to explode in the second plant five months later.

• 2012: The Tazreen Fashions factory in Bangladesh catches fire, killing 112 workers unable to escape because of locked fire exits, no exits leading outside the building, and no emergency plans. The factory had been audited by Walmart and others three times in the year before the blaze, the last one being in April before the November fire.

The CSR monitoring has failed to protect workers in global supply chains in spite of elaborate corporate CSR programs and scores of for-profit and non-profit CSR monitors.

The reason is that CSR programs fail to address the fundamental, underlying problems:

First, a business model that places priority on the brands’ “iron triangle” of the lowest price/the highest quality/the fastest delivery from contractors; at the same time that contractors are provided with ever-shrinking, razor-thin profit margins by the brands; while government regulation is made meaningless by corruption and lack of resources; and garment workers are so desperate for work that they cannot refuse any job, no matter how dangerous; and

Second, a near total lack of worker participation in plant-level health and safety programs which excludes the people with the greatest knowledge of the daily hazards on the job and the greatest stake in safe conditions who could make a real difference – if provided with training and the authority and opportunity to act.

Global supply chains will become safer, not with more CSR monitoring, but only with a sea-change in the international business model and the active participation of informed and empowered workers. A tall order, perhaps, but the only thing that will actually work.

Note: WRAP = Worldwide Responsible Accredited Production; ICTI = International Council of Toy Industries; CARE = “Caring, Awareness, Responsible, Ethical” program of the ICTI.

References mentioned in the text:

Dara O’Rourke; “Monitoring the Monitors: A Critique off PricewaterhouseCoopers Labor Monitoring,” 2000, http://web.mit.edu/dorourke/www/PDF/pwc.pdf

T.A. Frank, “Confessions of a Sweatshop Monitor,” 2008,
http://www.washingtonmonthly.com/features/2008/0804.frank.html

Alexandra Harney, The China Price, Penguin Press, 2008.

Fair Labor Association, “Independent Investigation of Apple Supplier, Foxconn Report Highlights,” 2012,
www.fairlabor.org/sites/default/files/documents/reports/appendix_1.1_sci_findings_guan lan.pdf.pdf

Key critiques of CSR Monitoring:

Scott Nova, Workers Rights Consortium, “Apple, Reputational Risk, and the Prospects for Labor Rights Reform,” 2012, www.epi.org/event/apple-foxconn-labor-practices-china

Scott Nova and Isaac Shapiro, Economic Policy Institute, “Polishing the Apple; Fail Labor Association gives Foxconn and Apple undue credit for labor rights progress,” 2012, www.epi.org/publication/bp352-polishing-apple-fla-foxconn-labor-rights/

Asia Monitor Resource Centre (Hong Kong), “The Reality of Corporate Social Resonsibility; Case Studies,” 2012, http://www.amrc.org.hk/system/files/Book%20%20The%20Reality%20of%20CSR%20-%20AMRC.pdf

Students & Scholars Against Corporate Misbehaviour (SACOM), “Making Toys without Joy: ICTICARECoversUpLabourRightsViolationsforGlobalToyBrands likeDisney,Walmart& Mattel,”2011,
http://www.scribd.com/doc/74886533/2011-12-05-Making-Toys-Without-Joy

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