Ethical trading: The moral maze

T his summer retailers including Next, Gap and Asda were in the headlines, named in a supposed exposé of poor ethical standards among some of their suppliers. Although the problems were already being addressed, the unwelcome press attention illustrated the huge challenges retailers face in monitoring not only their immediate suppliers, but also their suppliers’ suppliers, to ensure satisfactory ethical standards are met.

Global risks advisory organisation Maplecroft produces indices and reports to help retailers assess the dangers of high-risk suppliers or countries.

“That enables them to mitigate those risks when they go into those countries. We also help them on an advisory level too,” says Maplecroft research strategy director Dr Kevin Franklin.

At Tesco, high-risk suppliers have to undergo independent ethical audits every year, medium-risk suppliers every two years and low-risk suppliers complete an annual self-assessment, which is monitored by the retailer. “In 2009 we risk-assessed 100% of sites. We increased the number of high-risk sites audited to 94.7% from 87% in 2008 and audited 92.2% of medium-risk sites within the last two years,” says a Tesco spokesperson.

“If you do go with a high-risk supplier, you need to have good self-assessment questionnaires and good audit processes,” advises Dr Franklin.

Codes of conduct

Auditing is a vital tool for retailers in managing their suppliers. It ensures that each follows the retailer’s code of conduct. John Lewis has developed its Responsible Sourcing Programme, under which suppliers must adhere to standards set out in its Responsible Sourcing Code of Practice. Suppliers of its branded products also have to register on ethical database Sedex and complete self-assessment questionnaires.

“Based on the information in the questionnaire, we then carry out a risk assessment and prioritise sites for audit,” says John Lewis head of product sourcing Sean Allam.

Boots launched its own programme for assessing Boots brand or exclusive product suppliers against its Code of Conduct for Ethical Trading in 2002 and has so far assessed 1,100 of its suppliers worldwide.

Tesco is introducing ‘semi-announced’ audits - in which a supplier is given a one-month time slot in which to expect an audit to take place - for all its high-risk sites, up from 90% last year. The retailer also continues to conduct unannounced audits of high-risk sites, which last year included meat processing facilities and vegetable farms in the UK, factories in China and textile factories in Bangladesh, India and Pakistan. But auditing can present a tough challenge, owing to corruption on the part of some suppliers and factories.

“More often than not, one of the biggest challenges in China arises from a combination of management commitment and transparency. Are they providing a true insight into the factory conditions and is management committed to see this through or will they just do window dressing to fix the problem?” observes Mark Jones, chief marketing and product officer of Hong Kong-based corporate social responsibility consultancy Infact Global Partners, which works with Chinese factories and management to help them better position their businesses to meet the ethical demands of retailers.

Under pressure

Many observers believe current processes and thinking on ethical matters need to change. The current high level of corruption through false record keeping or bribing of auditors arises because retailers put too much pressure on their suppliers to deliver to short deadlines. Suppliers then worry that, if they do tell a supplier they are in breach of the ethical code, their contracts might be terminated.

It is a problem of which Boots UK quality and corporate social responsibility support manager Kevin Marriott is well aware. “We do recognise that withdrawal of our business in the event of non-compliance may cause severe hardship to those employed and we therefore work with our suppliers to move towards compliance,” he says.

Initiatives such as Sedex, a membership platform where retailers and suppliers are able to share ethical information, are helping by avoiding duplication of paperwork for suppliers.

“Retailers are getting better at ethical monitoring and there is greater transparency and awareness among suppliers but supply chains are very complex,” says Sedex head of business development Tom Smith.

Retailers can also add undue pressure if they do not give suppliers a fair deadline by which to change their practices. “It’s about having realistic expectations. Some brands may require three months in which to remediate excessive overtime, where a more realistic time frame could be six to 18 months,” says Justin Bettey, European director of audit and assessment company Level Works.

Retailers are trying to change how they work with their suppliers, moving from a policing role to a partnership approach. This involves explaining the business case for change to suppliers and illustrating that they will benefit, too. For some factories, that business case is crucial to engage their commitment. “There are some factories where the price point makes it hard to make the investment,” says Jones.

“Our programme doesn’t just check that suppliers are consistently abiding by the standards we set for them. Our in-house assessors also work with them to identify areas for improvement and help them to understand the requirements and benefits of our assessment,” says Marriott. “We also have the support of Boots experts, who are available to help suppliers resolve any problems.”

The message is getting through. Many suppliers and factories that deal with major retailers have already made changes, but Jones says the problem comes with smaller suppliers that aren’t used to the audit process.

The media focus is also skewed, and means retailers have focused on some product categories at the expense of others. “Consumers want to know that what they are wearing is not made by children, but I don’t know whether they think the same about their doggy toys,” says Jones.

Fashion gets targeted because it is one of the most widescale products, while problems of compliance in electronics goods are more unlikely because of the increased training and investment their production requires.

Retailers need to continue their partnership approach. “We need auditing, but audits check what the situation is on a given day. They don’t tell you what happened before or after, and they don’t change workers lives themselves. Increasingly we are working with companies more closely to educate their suppliers about how to better treat their workers and train their staff,” says Julia Hawkins communications manager at the Ethical Trade Initiative (ETI). ETI is also developing the Good Workplace programme, designed to develop models that show what good management looks like in suppliers’ factories - a model which can then be rolled out to others.

“Retailers will always need to have a role in monitoring suppliers but, because there has been a top-down approach to ethical trade, suppliers are tending to respond to retailers rather than realising they need to respond to what has come up in audit and that it makes business sense,” she says.

Retailers are increasingly coming up with new ways of handling such problems and working closer together but the effect can be limited.

“Although brands do work collaboratively on supply chain challenges their varying business and CSR strategies can impact on this joined-up approach and result in divergence,” says Bettey.

And retailers can never sit back and think the problem is solved.

“We see areas that show great innovation but, because of the sheer size of the supply chain, it can be very difficult to say this is no longer an issue,” concludes Smith.