It was every retailer’s worst nightmare: Days after the Rana Plaza factory collapsed in one of the worst industrial disasters in recorded history, activists began plastering the Internet with pictures of clothing labels uncovered amongst the rubble of concrete and human remains. Amongst these, some of the world’s most recognized brands, including Mango, H&M and Walmart.
In response to allegations that global businesses should have done more to prevent the tragedy, Mango released a statement on its Facebook page saying that: “It would have been impossible to detect the structural defects of the collapsed building.” Mango, like many other retailers, denied producing clothes at the site, inviting a storm of criticism from international activists and concerned citizens alike.
But Mango’s statement may have contained more truth than the company has been given credit for. At least two factories in the Rana Plaza had recently been audited according to international labor and safety standards, though both times the auditor failed to take into account the building’s hazardous structural decay, according to The Star. This despite the fact that over 900 workers had reportedly been killed in factory accidents in Bangladesh over the past year alone, raising concerns over the quality of audits as a means of supply chain monitoring in general. As the International Labor Organization’s General Guy Ryder, who helped spearhead the movement to improve safety conditions in the country, reported: "Despite the staggering loss of life over the past years, workers are still dying for reasons that could well be avoided if decent working conditions were in place.” Given the country’s precarious safety record, was Rana Plaza really such a surprise?
To date, Western companies’ preferred solution for managing supply chain risks has been to create new policies and codes of conduct backed by questionnaires and sporadic auditing of suppliers. But such solutions tend to ignore the realities on the ground. A recent survey by Supply Chain Insights found that only 26 percent of supply chain teams, and less than 10 percent of corporate CSR teams, were satisfied with the audit‐based approach favored by Western companies over the past decade. Those surveyed expressed similar frustrations when it came to tracking supplier data based on scorecards, with a majority admitting that they had no way of ensuring that the data collected was accurate.
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Managing an extended supply chain poses significant challenges for Western companies, not least of which is the apparent lack of transparency between geographically dispersed suppliers and centrally managed sustainability teams. Companies such as Swiss-based RepRisk, an ESG business intelligence provider, are therefore developing new approaches for identifying red flags in supply chains based on local, third‐party stakeholder input. While traditional approaches have become progressively desensitized to risks in the global supply chain, local stakeholders are often quick to identify emerging risks long before they reach headlines. Months before the Chinese government ordered Apple MacBook parts supplier Catcher Technology to suspend operations due to environmental concerns, for example, local environmental groups recorded complaints by residents over severe pollution in the area.
One of the biggest risks associated with monitoring suppliers based on company surveys or questionnaires is the apparent lack of disclosure or bias that can be avoided through the effective monitoring of third‐party sources. Prior to the Deepwater Horizon oil spill in 2010, for example, BP was listed on almost all major ethical investment indexes. Fortune, in partnership with CSRNetwork and AccountAbility, even awarded BP second place in its 10 Most Accountable Companies of 2007.
RepRisk’s Reputational Risk Index, on the other hand, had highlighted significant risk exposure due to frequent and severe criticism in the two years prior to the Deepwater Horizon spill, including multiple allegations of occupational health and safety issues as well as environmental pollution, negative impacts on communities and labor issues. In fact, RepRisk had captured more criticism related to occupational health and safety issues at BP than at five of its biggest competitors combined. As with Rana Plaza, critics were able to identify early warning signals long before scandal erupted.
“You cannot assess a company’s exposure to environmental, social and governance controversies based on data provided by the company itself and expect an unbiased result,” explains RepRisk CEO Philipp Aeby. “There is no evidence that this should be any different when it comes to the supply chain.”