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New Report Advises Brands on Avoiding Another Rana Plaza

The effects of poor working conditions in low-wage countries have caused many tragedies in the garment industry, spurring widespread media coverage and forcing brands and retailers to rethink social compliance.

But little, if any, relevant progress has been made in terms of creating more compliant conditions in countries like Bangladesh where many major brands still source.

In a new report titled, “Human Rights and Professional Wrongs,” multinational professional services firm Ernst & Young (EY) said social compliance programs have so far failed and the firm outlines what companies will need to do to improve supply chain conditions and avoid disasters like Rana Plaza.

According to the report, “In certain instances, such as that of Rana, social compliance programs have presented a dangerous illusion of progress while conditions, egregious even by 19th-century standards, have persisted unaddressed.”

The biggest problem, EY noted, is that a checklist approach to compliance and auditing in no way properly assesses the safety of an organization. Providing too many criteria for companies to meet a minimum standard of compliance is another issue. And, namely, in underdeveloped nations where corruption often runs rampant, there aren’t enough auditors who will look beyond protocols to report suspicions of doctored books or inaccurate representations of safety conditions.

Countries like Bangladesh, Haiti, Lesotho and Cambodia–where brands increasingly source from to capitalize on low-cost labor–have all gone through civil war and suffer from general instability, so it is unreasonable to expect a social compliance checklist to singlehandedly bring human rights to a Western standard, the report said.

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“The ability of social compliance programs to be effective is also compromised by the price and turnaround times mandated by an increasingly aggressive marketplace. Very often, human rights is the last of three minimum criteria to be met after cost and speed-to-market have been satisfied, and the industry has reached a point where these are becoming mutually exclusive.”

The first thing that needs to change, according to EY, is that companies need to use third-party certifiers and auditors more strategically. If audits aren’t working to uncover all of the pertinent issues regarding factory safety, companies need to consider whether the cost of outsourcing that verification is really money well spent. EY said companies should consider internalizing the “check-box” part of social compliance and let the third-party auditors do the more meaningful risk-based assessments.

Procurement systems also need to be tightened so that orders aren’t being places with factories that haven’t had their social compliance status assessed. If this requirement is implemented broadly, it could become a new minimum standard for the industry.

Retailers have to be in better touch with the factories producing their goods. The increasing use of agents and intermediaries has created too much of a knowledge gap and brands can’t afford to be unaware of the use of undisclosed suppliers and subcontractors who may not share their standard of compliance.

The report said companies should maintain longer relationships with a smaller number of suppliers.

When it comes to fast fashion, price and turnaround time are usually the biggest drivers for determining which factory gets an order and they are often brought on or discarded based on slight changes to those offerings. “This substantially undermines the quality of the business relationship and discourages factories from investing in anything other than cosmetic improvements to working conditions,” the report said. If procurement managers could start to be incentivized based on demonstrated human rights improvement and not simply price and turnaround metrics, the industry could start to see some changes.

But if we are to see any meaningful change to human rights in contract manufacturing, EY said, consumers will have to be willing to pay higher prices. “Engaging consumers and other stakeholders through sustainability reporting and online media can pave the way for what needs to be – for environmental and social reasons – a general transition toward quality over quantity in Western consumption habits.”

Brands need a “social compliance refresh,” according to EY. They need to assess the current human rights risks within their supply chain regardless of what’s been done in the past and of current certifications manufacturers profess to have to ensure their programs are actually effective.

The recent tragedies in Bangladesh have thrust human rights in the apparel industry into the public eye and have garnered considerable media attention, but even still, have only gotten the attention of a small percentage of consumers. If, however, “we see a reaction to working conditions in contract manufacturing on the same scale as the reaction to apartheid, the impact on some companies would be devastating,” the report said.

“This is not to suggest that manufactures should exit high-risk countries such as Bangladesh, which relies on contract manufacturing for a significant portion of its GDP. But it does suggest that if foreign investment is to deliver on the promise of socioeconomic development, it needs to acknowledge the fact that this is never achieved through prescription and only achieved through long-term engagement,” said the report.