Labor/Human Rights AuditsAccordia Global Compliance Group

Accordia

Established 2002

Agriculture – Apparel – Food Processing

Operates in 22 Major Sourcing Countries

Americas – Asia Subcontinent – Southeast Asia

Annual Global Audit Volume 2014 - 4,000+

Social Auditing

All Major Retailers and Brands Want to be seen as ‘Socially Responsible’• Commitment to labor and human rights laws, regulations and

practices from the top level of their organizations

• Driven by Shareholder Pressure, Customers, NGOs, Labor Organizations, Media Attention

• “Push” Compliance Through their Supply Chain

• Integrating Ethics into Core Business Practices of their Own Companies as well as their Suppliers

Social Auditing

Compliance is a Result of Industrial Revolution

– Initially Protection of Workers Health and Safety

– Then Protection of Workers Wages, Overtime

– Then Child Labor, Civil Rights, Unionization, etc.

1990’s – Gain Influence among Media and Government

– Rallying point for Students, Labor Unions, Fledgling NGOs looking for a cause

Social Auditing

1990’s (Awareness)

Media Driven, Labor Unions Stoked the Flames

2000 – 2005 (Development of Codes/Standards)

Retailers Searched for Best Practices and Auditable Codes and Standards to Prove Compliance

2005 – Present (Auditing & Sustainable Practices)

Walmart, SMETA, Costco & others

Social Auditing

Today - Four Drivers for Retailers

1. Integrating ethics into core business practices

– Supplier selection, terms of agreements, ‘buy-in’

2. Identify Problems in the Supply Chain

– Risk assessing and sharing, monitoring and evaluation, worker complaint mechanisms

Social Auditing

3. Improvement Actions Enabling Remediation

– Timebound actions, tackling root causes

4. Transparency

– Fair and accurate reporting and response to violations

When it Becomes Burdonsome

Audit Impacts:

– Preparation Consumes Resources (time & money)

– Interruption to Business and Production Processes

– Creates Worry among Managers and Workers

– Costly

Repetitive Auditing Impacts are Exponential

– Add: Audit Fatigue

– Add: Diminishing Benefits

Case for a Multiple Audit Event

Auditing will Remain a Supply Chain Tool for Retailers and Brands for the Future

Most Codes and Standards Converge Covering 90%

Child Labor, Forced Labor, Wages, H&S, Environment

Social Audit Protocols by Firms are Almost Identical

Walmart, SMETA, Costco, Walgreens, Starbucks, etc.

Case for a Multiple Audit Event

SMETA Audit is Becoming Most Widely Accepted in Agriculture and Food Processing Industries

Problem Brands may Not Accept SMETA as a Substitute for their own Assessments

Recommendation:

Wherever Practical, Conduct Combination Audits of SMETA and Brand/Retail Code Audits

Case for a Multiple Audit Event

Benefits:

1. Cost Reduction – Pay for one audit, multiple reports are written

2. Reduced Visits – Frequency of audits may be reduced from 5 or 6 per year to 1, 2 or 3 per year

3. Preparation/Resource – Reduce Audit Preparation Time, Conserves Resources

Changes to Walmart Program

Walmart will be moving to a ‘risk based’ approachUse data from the World Bank Governance Indicators report of

215 countries to create 3 risk level categories

Auditing requirements for each facility in thesupply chain will be based on the category of the country in which the facility is located

Category 1 – Lower Risk

Category 2 – Medium Risk

Category 3 – Higher Risk

Walmart reserves the right to audit any facility in their supply chain regardless of category risk rating

Changes to Walmart Program

While the approach to auditing is changing, many aspects of the overall program and requirements remain the same.

• All Suppliers (excluding Approved Brands) are still required to disclose their facilities producing product for Walmart.

• All Suppliers (including Approved Brands) and all of their facilities producing goods for Walmart are expected to adhere to Walmart’s Statement of Ethics and Standards for Suppliers.

Changes to Walmart Program

Accordia’s interpretation

Audits in North America will be reduced in:

– Number of audits

– Frequency of reaudits

Historically high risk industries (agriculture – child labor) will likely continue to have audits performed

Final Comments and Q&A

Thank You

Please accept our appreciation for the invitation to present

Accordia is a company focused on the importance of Sustainable Ethical and Responsible Sourcing of our clients