Investor Brief: Worker-centric due diligence: towards effective compliance

In response to significant consumer and investor pressure, many corporations have implemented corporate social responsibility (CSR) initiatives to monitor and deliver compliance.

Decades of research into workplace compliance initiatives in global supply chains have found that private compliance initiatives (PCIs), which may use mechanisms such as "codes of conduct, auditing, certification schemes or other self-reporting mechanisms", are insufficient to effectively manage business and operational risks from labour violations in supply chains.^[1] In fact, social audits have consistently - and in many cases tragically - failed to detect safety breaches and labour rights abuses.^[2]

The only compliance initiatives that work are those that include a formal role for workers and their representatives (including trade unions) in compliance: worker-driven social responsibility (WSR) initiatives. ACCR has been engaging investors in high risk sectors regarding the adoption of a WSR approach that includes, as a minimum, the following principles:

• Supplier accreditation and compliance is determined through a multi-stakeholder approach, involving workers and the representative organisation(s) of their own choosing.
• Workers receive peer-led labour rights education with the involvement of representative organisation(s) of their own choosing.
• Grievance procedures are led by workers, and involve the representative organisation(s) of workers’ own choosing in the resolution of complaints.

The problem of audits

• Audits alone are insufficient for identifying and understanding workplace issues such as harassment, wage theft, excessive overtime, and freedom of association violations. They are also unlikely to pick up the worst forms of labour violations (child labour, modern slavery, etc.).^[3]

• Audits “represent a snapshot of a given point in time” and do not give a full picture of “normalised working conditions”.^[4] As such, they can capture “distort[ed]... realities of a workplace”.^[5]

• There have been a number of high profile—and sometimes tragic—cases where audits have failed to pick up safety breaches and labour rights abuses:

  • In 2012, over 250 workers died in the Ali Enterprises factory fire in Pakistan, when they were unable to escape due to bars on exits and windows. The building had been deemed safe by auditors who had reportedly never even visited the building.^[6]
  • In April 2013, the collapse of the Rana Plaza building in Bangladesh killed 1,134 workers and left thousands more injured and traumatised, only months after being assessed and declared safe by leading audit companies using the standard, methodology and guidance of leading compliance initiatives such as amfori BSCI and SAI.^[7]
  • Top Glove, a Malaysian manufacturer of rubber gloves, was awarded an “A” grade by BSCI and certified by Sedex, shortly before evidence of forced labour (including illegal recruitment fees, were uncovered.^[8]

• A number of organisations are mobilising to increase auditor liability in the face of these tragedies:

  • In 2016, the European Center for Constitutional and Human Rights (ECCHR) produced a report on legal liabilities for auditors and the companies who rely on them.^[9] They also submitted an OECD complaint against the auditor.^[10]
  • The Business and Human Rights Resource Centre (BHRRC) has indicated that auditor liability will be a focus of engagement in 2021. They plan to release reports in March and September on this issue.

• Audits are also vulnerable to manipulation and corruption. A South China post investigation uncovered audit consultants, who could:

“...conjure up documents for a full team of seemingly legitimate factory workers and records in 90 seconds, including in cases where the actual workers are not of age or do not have the proper documentation, or where time sheets may not be kept, or may be in conflict with China's labour laws” and “bring auditors to a ‘show factory’ - someone else's plant that is more likely to meet Western-set standards. Temporary walls may also be erected in factories to cover up deficiencies”.^[11]

• Even where audits do pick up breaches, these breaches are not necessarily communicated to investors or addressed by the company - as in the recent Boohoo scandal that ultimately led to the divestment by Aberdeen Standard.

Workers and their representative organizations are critical to compliance

• The OECD defines “worker voice” as the “various institutionalized forms of communication between workers and managers to address collective problems”. They note two forms of voice: direct and representative:

  • Direct: mechanisms that allow direct communication with management (e.g. whistleblower hotlines, town hall meetings etc.)
  • Representative: where voice is mediated through representative institutions, including trade unions, workers councils and workers’ representatives.
    Representative forms of voice typically come with greater legal protections and rights, including “against retaliation and firing, and information and consultation rights”. It is these rights that mean these forms of voice cannot be substituted.^[12]

• A robust human rights due diligence framework requires companies to directly engage workers and their representatives, and encourages “ suppliers to recognise and engage positively with trade unions”.^[13]

• The formal involvement of trade unions in compliance allows workers to raise workplace issues early, allowing businesses to resolve them “before they escalate into more lengthy and complex disputes that may come at a high cost”.^[14]

• There is substantial research on how the involvement of unionised workers’ substantially improve OHS outcomes:

  • The European Agency for Safety and Health at Work, finds that workplaces where workers actively contribute to OHS typically have lower operational risk profiles.^[15]
  • Fidderman and McDonnell found that where worker involvement happened in non-unionised workplaces it was more likely to follow the employer’s agenda. By contrast, “unionised safety representatives were more likely to be empowered to set an agenda and be challenging”.^[16]
  • Walters finds that where Health and Safety representatives are supported by trade unions, “they are more likely to be able to engage meaningfully and autonomously in the dialogue with employers that is essential to self-regulation”.^[17]
  • A 2020 US study found that there was a 30% decrease in mortality rates & 42% less COVID infections in nursing homes with union presence.^[18]

Worker-driven social responsibility (WSR)

Worker-driven social responsibility (WSR) is an example of worker-centric due diligence. It was pioneered by the Committee for Immokalee Workers, through their Fair Foods Program (FFP). A key feature of WSR is that workers and their representative organisations are central to the “creation, monitoring, and enforcement of programs designed to improve their wages and working conditions”.^[19]

The FFP has substantially reduced non-conformances on farms, and has seen a huge decrease in sexual harassment and assaults on migrant workers. During 2020, it was also instrumental in minimising COVID transmission on participating farms.

WSR initiatives have been extended to other industries and locations, and while some of the implementation may vary, they are characterized by six key principles:

• Labor rights initiatives must be worker driven;
• Obligations for global corporations (buyers/lead companies) must be binding and enforceable;
• Buyers must afford suppliers the financial incentive and capacity to comply;
• Consequences for non-compliant suppliers must be mandatory;
• Gains for workers must be measurable and timely;
• Verification of workplace compliance must be rigorous and independent.^[20]