Sourcing Snapshot - Does Your Organization Really Enforce Its Labor and Human Rights Standards?

Saying that you have no human rights abuses in your supply chain, and actually being able to verify that you do not, are two different issues. Auditing and tracking of human rights compliance and violations is trickier than it sounds; auditors can be paid off in LCC countries. Even honest auditors typically announce their audits prior to arrival, allowing facilities to “sterilize” their operational environments for the day, and revert back to old habits. A more useful approach involves assessing the end-to-end sourcing process, which consists of supplier evaluation, contracting, and performance measurement, and is much more preventive in nature. Not only can organizations avoid establishing contracts with suppliers who do not manage their LHR processes, but a framework that provides ongoing monitoring and punitive measures for those who do manage to sneak through the security net is more likely to ensure compliance.

But what are the criteria for assessing LHR violations? One of the most important frameworks that has emerged is the one provided by the International Labor Organization, which provides several key guidelines for assessing compliance to fair labor standards. These are listed below. The International Labor Organization (ILO) framework is useful, but applying it to the sourcing process is more problematic. There is a need for establishing guidelines that can be applied to the sourcing process (selection, contracting, and performance measurement) that ensure that ILO human rights guidelines are explicitly considered.

There are a number of clear guidelines that spell out whether or not an organization is really serious about improving their supply chain human rights performance. These must be clearly identified in an organization’s policies and procedures, and integrated into daily routines for supply managers. These include elements that align with best practices in strategic sourcing and global supply management, and are described below:

• Code of Conduct: Does the organization have a code of conduct for suppliers that clearly represents acceptable and unacceptable labor practices that align with the ILO standards? Are there penalties in place to enforce compliance?
• Contracts: Do all sourcing contracts with global suppliers include clauses that mandate penalties for noncompliance to code of conduct violations?
• Reporting: Are there internal performance tracking systems, complemented by independent auditors, to track compliance to code of conduct requirements? Are these measures reviewed on an appropriate basis by senior executives?
• Supplier Enforcement: Are there on-site programs to train suppliers and to demonstrate exactly what is meant by code of conduct requirements? Are suppliers also required to adopt an aligned code of conduct policies into their own organizational governance systems?
• Second Tier Suppliers: Many suppliers simply pass on their human rights violations to smaller, second tier subcontractors. Do these Tier 1 suppliers have their own auditing systems to ensure that these Tier 2 suppliers are also compliant with code of conduct requirements?
• Evaluation: Are there internal auditing systems that audit a majority of suppliers on a regular basis (annually)? Are these completed by independent, respected auditors? Are auditor reports maintained in a database that is shared with key suppliers, as well as external parties?
• Human Resources: Are there training programs in place to ensure suppliers understand how to improve compliance to ILO requirements? Are there other mechanisms to engage the local community to support these measures?
• Lawsuits: Does the organization have a clean track record of addressing any outstanding labor and human rights lawsuits?

These building blocks provide clear and unequivocal standards that senior leaders can apply to gauge whether they are truly committed to human rights improvement in the supply chain. The standards also provide clear benchmarking guidelines that can be used to measure the level of LHR compliance of not only a single enterprise, but an industry or a region of the world. Source: Handfield, Robert, and George, Seena, “Labor and Human Rights in the Supply Chain”, Working paper, Supply Chain Resource Cooperative, 2010.