The Ethical Audit

Anthony Pile explores the ethics of the ethical audit

This short paper has been inspired by a realisation that much of the material which makes up the basis upon which food retailer ethical audits are conducted on overseas food suppliers to Britain, has come from experts in ethical conduct who themselves are influenced by the International Labour Organisation (ILO) and the British unions. Ethical audit checklists are based on ILO conventions, many of which were written almost a century ago when there was an assumption that employees and management were in opposition, something which exists less commonly today.

In 2015 the drive and enthusiasm to find the “right” way to conduct business follows many different forms, and who is to say that any modus operandi is better than any other, as long as it works? Surely the most effective measure is whether the company is simply a happy one? It matters less nowadays whether a company is unionised yet an ethical auditor will immediately mark down any business in Africa supplying retailers in UK if they aren’t. Given the declining influence of unions in British industrial society and the questionable practice anyway of using a one sided body to measure how fairly a business in Africa or elsewhere conducts itself, is it time we reviewed the objective and content of audits on suppliers from abroad?

It was surprising to discover that ethical audits are often not carried out on UK based suppliers and focussed almost entirely on foreign ones (presumably outside Europe) where there is apparently a risk that retailers could be embarrassed by illegal practices or behaviour not approved by the auditing bodies. Even British companies based outside Europe are audited. When we investigated we saw that a risk assessment company called Maplecroft has led Sedex, the body responsible for collating information on suppliers, to place the whole of Africa as “high” or “extreme” risk. Suppliers rated as operating in a high risk area, apparently mandates retailers to send the ethical auditors in, even though the target business might have awards and credentials on good governance that place it above many British factories and businesses.

The audit fees are met in full by the food suppliers. All preparation, flights, translation, accommodation and transport are further costs borne by the audited company. Sometimes flight times and the extent of the work carried out all mean that the auditor will spend days on the job further adding to cost and pressure on the host company. The annual cost is very considerable. At a time when many governments are looking to reduce the red tape and costs around small and medium businesses, this places an unfair burden on operations in Africa trying to compete with European businesses.

Company culture is firmly put to one side as the audit gets underway and the routine of the inspection is entirely dictated by the auditor. Any deviation or attempt to deviate is viewed as obstructive and marked down to be remarked upon in writing in the final widely published report. Most of the information about the way a company operates comes from the lowest paid people in the business. Interviews are conducted with employees (without anyone else allowed to be there) to see if there is freedom of association, any child labour, wages and benefits regarded as not “best practice”, discrimination, harsh treatment, unfair working conditions and so on.

These meetings are conducted in secret and it is made clear to the staff being interviewed that anything they say will not get back to “management”. But when whatever is said, or interpreted as being said, is reported widely on the internet for all customers to read on Sedex, without any real opportunity for the company to defend its position or to challenge the evidence, the whole practice in itself, ironically, seems harsh, unfair and very unethical.

It should be said that the auditors themselves do try to be as friendly as possible and often feel embarrassed that they are judging a company’s practices in a country with a culture they know little or nothing about. They will normally make comments in the report about good practices, but, not surprisingly, the supermarket reader back in UK will only be looking for those parts of the report which might lead to an embarrassment or adverse newspaper report in the future.

Is it not time for change? What we need is a dialogue between the supermarkets, the suppliers and the auditing bodies in search of a balanced and fairer and much cheaper system which protects the supermarket and the “good” supplier. The method of the audits is in need of review and the targets should be selected based on reasonable criteria.

Most suppliers will think that their code of practice is actually better than the minimum called for by the supermarkets and many will believe that marking down a company that creates a happy and safe environment in a way that is not envisaged by SEDEX is not just. Many suppliers in Africa will regard the one-sided content of the audit and sense that the West knows best, as more than faintly arrogant. There needs to be an overhaul of the auditing systems so that they work for all and cost much less.

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