The Compliance Trap

Not a week goes by, but a newspaper publishes an article which accuses both a garment factory of failing to meet minimum standards of compliance and their customers of negligence and even complicity.  The general complaint is that the factory employs child labor, working in sweatshop conditions, at slave labor wages;  and that the customer knowingly permits this to occur.

If true, these newspapers are indeed performing a public service.  Consumers should be made aware when in an effort to increase profits retailers and brand importers resort to placing their orders with sweatshop operations.

However, it is my personal experience that many of these articles have little or no basis in fact. Quite often these exposes are simply cases where unscrupulous newspaper publishers create facts to sell papers.

I have seen many factories operating in sub-standard conditions where criticism is well deserved.  I have also seen many factories where the expose has no basis in fact. In these instances the  good factory has little chance to defend themselves  even if they are able to afford the cost of legal action.

For example, a factory employing some 9000 guest workers from Bangladesh, Sri Lanka, and China runs a good clean operation.  The standard of the factory and its working conditions are considerably higher than those located in Los Angeles or the New York Chinatown district.  Their dormitories are on a par with workers’ dormitories in Europe. Nevertheless, a London newspaper published an expose of this factory.  Their litany of complaints included workers forcibly trapped in a sweatshop, paid slave wages (which they defined as substantially lower than UK wages).  The article also accused a leading UK department store of collusion.  The article was not only unfair, it was dishonest. The journalists had never visited the factory or its dormitories. The story was based on an with a single disgruntled employee, who was angry because management had decided not to renew her contract.

Management’s immediate reaction was to sue for libel.  Their legal cost, which their London solicitors estimated to be in excess of £1 million was no deterrence.  However, in the end they decided to do nothing.

Ø    Their solicitors advised them that the subject was one of public interest  which allows the newspaper greater leeway in the material they published.

Ø    The solicitors advised them that the article was accurate in at least one area — wages were indeed well below those paid in the UK.  It matters little that the factory workers’ wages are 3-8 times those paid in their home countries.

Ø    The solicitors advised them that their customer accused of complicity believed it much more effective to do nothing, believing that the offending article would be quickly forgotten. Without the customer’s support legal action might well fail.

The problem is that compliance while an excellent idea in theory is fundamentally flawed.  Reality has transmogrified what was originally an honest effort to make the industry more socially responsible into a farce where neither the very worst factories are penalized nor the very best factories protected.

More seriously, compliance has given rise to two false insidious beliefs

a      That all garment factories are sweatshops employing children in slave labor conditions.

b      That improved conditions would invariably lead to higher garment prices

As a result, all our efforts to improve the garment industry have left the consumer with two unreal choices: pay less for your clothing by turning a blind eye to terrible working conditions, or improve working condition but pay more for your clothing.  Naturally, consumers the world over are more concerned about their own welfare than people in Bangladesh or Cambodia.

Lost in this argument is the reality is that as a rule, better working conditions reduce costs.

It is past time that we reform the compliance process.  We can accomplish this with three specific changes.

1.    Get the customer out of the audit process.

We look at compliance audits as a customer imposed process.  In fact compliance should exist to protect everyone:  the customer, the factory, its workers, and the consumer.  When the customer imposes their own rules of compliance and uses their own people to audit their supplying factories, they become part of the process and cease to be beneficiaries.  When compliance problems are uncovered, the customer is by definition negligent and possibly complicit.  After all the customer carried out the audit. They should have uncovered the problem in the first place.

2.    Create a single global standard of compliance.

Currently the industry is cursed with literally hundreds of compliance gospels.  In many cases specific requirements are of little relevance and in some cases make little or no sense.  More importantly the gospel according to customer-A flatly contradicts the gospel according customer-B.  The result is that factories must make extraordinary efforts to satisfy each customer, when they know that regardless what efforts they make,  they will receive 0 protection when problems occur.

3.    Hold the auditors accountable for their work.

This is the most important change

It is inconceivable that a professional honest audit would fail to uncover underage workers or substandard working or living conditions. There can be no legitimate excuse.  When a company hires an independent auditor for any reason, they have a legal right to assume that their auditor will carry out the work skillfully and honestly.  An accountant who fails to provide accurate information in their financial audits can be sued by stakeholders and penalized by government agencies. Compliance auditors should be held to the level of accountability.

These three changes alone will in themselves place responsibility where it belongs.

When problems occur, customers will be seen as victims rather then conspirators.  They acted properly by entrusting auditing to professionals with in-country facilities who were charged with ensuring that the factory was acting within global compliance. The customer would no longer have a reason to bury the issue. To the contrary they would have every interest to discover the truth.

To the factory the compliance audit becomes insurance against libelous attacks on their working conditions.  They would have every incentive to defend themselves in court, with the knowledge that they have their customer’s full support.

Factory compliance will probably never be achieved on a national let alone global basis.  There are too many on both sides — customers and suppliers — who are unwilling to make the necessary effort.  They deserve to be the target of legitimate criticism.  However, we must create a system where those who see the value of compliance and are willing to make the necessary effort can be protected from unfair and dishonest criticism. We owe this to our customers, our factories, their workers, and our consumers.

This entry was posted in Articles, Customer Strategies, Factory Strategies and tagged , , . Bookmark the permalink.

One Response to The Compliance Trap

  1. Clifford says:

    Interesting post David. It’s been a year since you wrote this, what do you think are solutions to this “Compliance Trap”? What would you suggest on how to manage expectations on both sides of the negotiation line?

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