Scandal
Unfortunately this does not mean that alarming situations are a thing of the past. Especially when it comes to enforcement of codes and routine checks of ethical standards, retailers still slip. In October last year, secret footage painfully showed that some of Tesco’s own-label clothes were being produced by underage workers in Bangladesh factories. What added to the scandal was the fact that the retailer was never aware of this. A poor excuse for leaving the exploitation of children unnoticed. This year, Wal-Mart was the subject of negative news coverage regarding poor working conditions in the Chong Won Factory in the Philippines, an apparel producer. Again the retail giant was associated with social tensions in a conflict between factory management and a poor labour union. According to the Worker Rights Consortium, a US Watchdog, the retailer fails to set standards to stop worker abuse and the unlawful dismissal of strikers.

Wal-Mart transparency
Both cases of social injustice do not come as a surprise. Social sourcing is still in its infancy. There is still a long way to go, as a 2006 report of Sussex University’s Institute of Development Studies showed.  The authors state that some of the limits lie in monitoring and the inability of retailers to improve working conditions. They conclude that monitoring efforts have helped eliminate child labour violations and have improved factory safety but have to date yielded far less impact on issues such as freedom of association and regular employment. A positive thing is that retailers no longer sit back to wait and see but have started to act. Leading companies in food retail are now taking social responsibility seriously. In 2004 Wal-Mart issued its first Report on Ethical Sourcing. Repeatedly criticised by consumer groups for its poor social record and accused by anti-Wal-Mart websites of ignoring sweatshop practices, the world’s largest retailer now offers a glimpse into its supply chain. This has resulted in a transparency unprecedented in the company’s history.

Pre-qualification
When paging through the reports, it appears that Wal-Mart is making steady progress in tackling social issues. In 2005, several enhancements were implemented to the company’s Ethical Standards programme, encompassing health and safety practices, freedom of association, and the rights of foreign contract workers. Also the number of auditors was increased and the monitoring programme was intensified. During 2005, Wal-Mart auditors and third-party firms conducted more than 13,600 audits of 7,200 factories. Of these, 141 were permanently banned from doing business, primarily due to underage labour violations. Another 23 factories were disapproved for non-compliancy with the Wal-Mart standards. As a consequence of the company’s increasing unannounced audits more high-risk violations were observed in 2005. Parallel to inspections, the retailer started a training programme on social and safety issues for suppliers and members of factory management. Over 10,000 were trained in 2005. In 2006, the company again increased the number of announced audits and strengthened environmental criteria. During that year 16,700 audits were performed in 8,873 factories around the globe.
In the coming years Wal-Mart will explore new mechanisms to improve audit results such as pre-qualification of factories for ethical standards and quality assurance. Only factories with Green, representing low to medium risk to factory workers (see side bar), or Yellow, posing a greater risk are allowed to begin manufacturing merchandise for sale by Wal-Mart. Pre-qualifying is scheduled to take place in phases over the next few years. This will start with the category of merchandise which is consumed by Wal-Mart that is not for resale merchandise, followed by toys and apparel.
Wal-Mart, as well as Tesco and other large retailers heavily rely on monitoring tools in order to account for their commitment to social corporate responsibility. Critics, however, argue that ten years of monitoring have not resulted in a significant reduction of the number of abuses in sectors such as clothing, footwear and toys. In fact little progress has been made. Monitors may flag up problems but solving them is a different thing. Moreover, the monitor model is a troublesome tool. Covering up abuses may pull the wool over the auditor’s eyes, serious labour problems are not identified, while factory reports do not always reflect reality. In fact, there is an alarming rise in audit fraud, retailers like Sainsbury’s have experienced. Moreover, the supply chain is extremely complex. Rotten apples are easily overlooked, especially when it comes to ethical sourcing. After all, factories want to stay in business. Suppliers in turn complain of auditing fatigue. They are confronted with multiple inspector visits from retailers, brands and independent (non-profit) auditors. This may lead to confusion and failure to meet criteria. As a consequence suppliers often have to meet inconsistent corrective action plans.

Auditing cannot be more ineffective. Retailers finally realise that auditors of different parties have to draw one line. This will greatly enhance the efficiency of monitoring programmes.  It is for this reason that the world’s largest supermarket groups – Wal-Mart, Tesco, Carrefour, Migros and Metro – came together last year to endorse a new global initiative. The objective was to encourage the development of a unified approach to promote uniform and acceptable working conditions within the entire supply chain. The joint sessions, led by the International Committee of Food Retail Chains (CIES), resulted in the so-called Global Social Compliance Programme (GSCP). The code that was drafted between July 2006 and January 2007 was opened for consultation at the beginning of this year. On http://gscp.myciesnet.com/ visitors are notified that the Feedback Submission Period ended last September. At this moment the code is ‘under construction’. Governance structures are being put in place that will increase transparency and engagement with stakeholders, among which NGOs and multilateral organisations.
GSCP’s global approach is new, the scope it seems is not. The initiative comes on top of existing initiatives, such as the Ethical Trade Initiative (ETI). Many members, mostly British, have chosen to adopt the ETI Base Code as the code of conduct used within their supply chains. Ironically enough Tesco (already an ETI-member as is Sainsbury’s, Marks & Spencer and Wal-Mart-owned ASDA) has now for reasons unknown chosen for an additional code of ethical standards and programmes with global coverage. 

• Green 5.4% Low-risk violations – re-audit after two years
• Yellow 51.6% Medium-risk violations – re-audit after 120 days
• Orange 40.3% High-risk violations – re-audit after 120 days
• Orange-Age 0.4% One or two underage workers found – re-audit after 30 days and if underage labour is still present, give the factory a Red-Failed assessment
• Disapproved 2.1% Four Orange assessments in a two-year time period – barred from producing merchandise for sale by Wal-Mart for one year
• Red-Failed 0.2% Permanently barred from producing merchandise for sale by Wal-Mart