Badger Sportswear (asi/37876) was staring down a nightmare scenario.

An Associated Press article in late December 2018 reported the Statesville, NC-based supplier was sourcing apparel from a Chinese factory that was allegedly using forced labor. As the story made headlines, Badger immediately suspended ordering from the Hetian Taida Apparel Co. facility. It just as quickly launched an investigation, the result of which was that it permanently cut ties with Hetian and pledged to no longer source from China’s Xinjiang region, where press reports indicated more forced labor was occurring.

Despite the quick action, Badger immediately felt the repercussions. High-profile clients, including colleges and universities, pulled Badger apparel from campus stores and issued statements saying they would no longer do business with the company. Badger says only about 1% of its apparel came from the factory, but the company’s name continues to get mentioned in media reports about forced labor. Perhaps even more galling for the company is that Badger executives said the Hetian Taida facility had been audited.

The cautionary tale highlights the crucial importance of ensuring the factories promotional products companies rely on are operating ethically. Over the last couple decades, many stateside companies in promo and other industries have relied on factory audits to ensure production facilities meet their social compliance standards. And yet, in the wake of multiple high-profile tragedies and exposés, an increasingly vocal contingent of critics is questioning the veracity and effectiveness of those audits.

For instance, a 2018 study from Brigham Young University concluded that audits of factories in four Southeast Asian countries between 2003 and 2010 didn’t significantly improve conditions for workers.

Taking a harder line, a Netherlands-based labor rights group, Clean Clothes Campaign, released a study last September that alleged audits have “failed spectacularly” to protect garment factory workers. Instead, the study asserted, audits serve merely as a cover for guarding brand reputation. The report cited (as one example) the April 2013 collapse of the Rana Plaza factory building in Bangladesh. More than 1,100 garment workers, laboring for low wages, died in the tragedy. Not long before the poorly constructed building caved, a factory audit failed to notice significant safety defects and the use of child labor, according to Clean Clothes Campaign. “It’s startling that no one – not a brand or an auditing firm – was held to account for the massive loss of life,” says Kalpona Akter, founder of the Bangladesh Centre for Worker Solidarity.

Can factory audits be trusted? Do they ensure a supply chain is safe from abuses? After all, it’s not just company’s reputation riding on them – it’s human lives.

A Snapshot in Time
A social compliance factory audit is a physical, in-person review of a factory conducted by an auditor. Auditors can be an employee of the company that’s sourcing from the facility, work for a third-party firm that performs audits on behalf of the company, or be working in connection with a nonprofit agency that focuses on accrediting a company’s supply chain as being in conformance with a set of social compliance standards. Factory floor walk-throughs, interviews with employees, meetings with owners/management, and reviewing documents related to employees are often part of an audit.

“Without clear direction, audits may not be as effective as they could be and brands could be exposed to liability.”Denise Fenton, QCA

The intention is to evaluate whether the production facility is meeting the company’s (or accreditation organization’s) corporate social responsibility (CSR) code of conduct. While audit standards vary, quality assessments typically seek to establish that a production unit is “structurally sound, compensates its employees in accordance with local laws, and operates a workplace environment free of harassment or abuse,” says Seth Lennon, communications manager for Worldwide Responsible Accredited Production (WRAP), a nonprofit that promotes safe, lawful, humane and ethical manufacturing through certification and education. Naturally, good audits look for red flags like child labor, forced labor, shoddy fire safety, doors locking employees in, inadequate entrance/exit points and poor living conditions in dormitories if workers live onsite.

While the audits can provide valuable information, “the inherent weakness in them is that they are essentially a snapshot of the facility on that day or days that the auditor is there,” says Chris Fox, vice president of corporate social responsibility at global apparel maker HanesBrands (asi/59528).

“There’s room for factory owners to get the factory into good shape for the audit – clean up the aisles, put safety guards on equipment, keep child labor and prison labor out, unchain fire exit doors,” says Leeton Lee, an attorney who has specialized in social compliance and product safety issues in the promo space and other industries for decades. “Still, once the auditor is gone, they may go back to their old ways.”

Another issue, some critics say, is that audit standards are determined by codes of conduct from companies and accrediting entities, rather than binding mandates that such organizations are legally obligated to meet. Conduct codes will likely call for adherence to elements like labor laws and certain other established standards for protecting workers’ safety and the environment. Even so, audits can essentially be dependent on what the organization commissioning the audit wants to know – and that can, critics maintain, be detrimental to workers. “We need laws that hold these corporations to account,” says Akter.

Communication challenges can weaken the efficacy of audits, too. “It’s essential to be very clear on what is to be audited and the standards against which the factory will be measured,” says Denise Fenton, executive director of Quality Certification Alliance, a coalition dedicated to ensuring accountability and independent validation of corporate responsibility in the promo industry’s supply chain. “Without clear direction, audits may not be as effective as they could be, and brands could be exposed to liability.”

Furthermore, quality audits are “dependent on factors like an auditor’s efficiency, ability to corroborate information uncovered during the audit, how transparent the factory is willing to be, and the cooperation of the factory workers during interviews,” says Melissa Nelson, SanMar’s (asi/84863) general counsel. Her team manages the Top 40 supplier’s compliance program. “There will always be a human component to factory audits.” Sometimes, that human element is prone to corruption, with unscrupulous auditors accepting bribes from factories. “It’s not common,” says Fox, “but it happens.”

The Power of Audits
Despite the potential weaknesses, proponents say audits have been extremely valuable mechanisms for helping to better conditions for workers, create CSR compliance in supply chains and protect brands’ reputations. Those results occur when audits are performed expertly and utilized as a diagnostic tool that’s part of a more comprehensive approach to compelling improvement at factories. The approach centers on “noting necessary corrective actions in a detailed manner, clearly communicating these deficiencies to facility management and collaboratively addressing them in a timely fashion,” says Lennon.

“Factories will improve when you tell them they have to improve.”Chris Pearson, Spector & Co.

Leading promo suppliers are executing on that broader scope. SanMar, for instance, has a multifaceted monitoring program that includes self-assessments, audits, remediation and training. The Issaquah, WA-headquartered supplier also participates in QCA and the supply chain accrediting nonprofit Fair Labor Association. Through FLA accreditation, notes Nelson, SanMar’s monitoring program is vetted and approved as meeting FLA code of conduct standards.

To ensure the validity of its audits, SanMar works closely with third-party audit providers to develop clear field instructions for auditors, periodically evaluates audit providers, and shadows audits to validate that best practices are being implemented. “Using audits to vet factories has helped us identify the right partners to work with and gain confidence that we are working with some of the most socially and environmentally responsible factories in the world,” says Nelson. “It’s led to safer conditions for workers and helped us provide more focused training to factories based on their weaknesses, which has helped build trust and long-standing relationships with the factories.”

Indeed, proponents say it’s pivotal to use audit results as a foundation from which companies can collaborate with factories on improvements. “By working in conjunction with the factory and explaining exactly what will be audited, they can grow and meet requirements over time,” says Fenton, noting it benefits workers and the companies sourcing from the production facilities. “Let them know you want to be able to collaborate, but that they must have defined systems in place to win, and keep, the business.”

Companies have the power to compel change if they insist on it and threaten to take business elsewhere if improvements aren’t made. “It comes down to the bottom line: Factories will improve when you tell them they have to improve,” says Chris Pearson, director of compliance and overseas operations for Montreal-based Top 40 supplier Spector & Co. (asi/88660).

As part of its auditing program, New Kensington, PA-based Top 40 supplier Polyconcept North America (PCNA; asi/78897) expects factories to get better. To accelerate the evolution, PCNA has an active coaching program to help factories address issues. Factory owners have told PCNA that they hated it when the supplier started auditing them and insisting on changes. Several years later, however, the owners admit their operations are better, safer and more efficient as a result of those changes, PCNA executives said.

Like SanMar, PCNA says a key to its successful approach is consistency and continual evaluation of audit quality. In 2019, PCNA’s internal auditor team conducted more than 120 factory audits in China. The supplier also had third-party auditors perform a handful of assessments inside of China, with more than a dozen audits conducted by third-party auditors in other countries. “We also use some third-party audits as a way to monitor our in-house ones, which maintains the quality of those audits,” PCNA executives told Counselor.

With global net sales of about $7 billion, HanesBrands has an extensive supply chain to oversee. Both factories it directly owns and outside factories the company employs are subject to rigorous audits and improvement accountability, Fox says.

All new potential factory partners must go through an audit that includes 260 questions on protocol. Once part of the HanesBrands production network, facilities are audited annually. After those audits, HanesBrands deploys its internal auditors to work with factories to correct problems. Each facility’s performance is scored. On average, the Hanes-owned facilities score higher than contractors. Still, the audits and subsequent corrective action follow-ups have catalyzed improvements at facilities throughout the supply chain, says Fox: “We push for continual improvement, and that’s led factories to increase their scores.”

Tangible Change for the Better
For HanesBrands, the rising scores aren’t just a corporate metric – they’re evidence of tangible positive change for the people making clothes the company sells. Fox gives an example: HanesBrands had contracted a third-party factory in Jordan. Most of the workers, who were primarily migrant laborers from India and Bangladesh, lived in onsite dormitories. Dorm living conditions were subpar, and Hanes demanded they be improved. The factory owner made minor tweaks but didn’t undertake the meaningful overhaul Hanes wanted. Finally, Fox said to him, “‘You’ll know you’re meeting our expectations if you’d allow your teenage child to live there for a week.’ That’s when the light bulb went on.” After that, the owner razed the old dormitories and built new ones in line with Hanes’ standards, Fox says. The dorms included floors reserved for classrooms, where laborers could learn basic writing, reading and math.

That’s the kind of advancement well-conducted social audits can make when performed in accordance with stringent follow-up that demands accountability and change from factories, say audit proponents. Those advancements can ultimately amount to more humane, ethical supply chains.

“Using audits to vet factories has helped us identify the right partners to work with.”Melissa Nelson, SanMar

“Audits improve the breed,” says Lee. “There’s definitely a wider and higher level of factory compliance in China than when I first started in the consumer products industry more than 25 years ago.” For instance, one of the first audits Lee ever ordered of a factory in China discovered dozens of shoeless 5- to 12-year-old children painting and assembling musical instruments. “That was the norm back then, but those types of working conditions in China are pretty much gone now,” Lee says. “Through auditing, companies have dramatically reduced supply chain risks.”

Fenton, of QCA, adds that compensation for workers in developing countries has been dramatically improved partly as a result of effective auditing and monitoring programs. Audits have also helped reduce instances of laborers being forced to work illegal overtime hours and workers not being paid properly for the time they’ve put in. “Through auditing, we’ve seen working hours go down to where they should be,” says Spector’s Pearson. “Overall, auditing has helped improve the factories we work with – the structure of how things are run is better. The quality of life for employees has improved.”

“When we started auditing our factories over 10 years ago, we found that many were not abiding by our code of conduct,” PCNA executives told Counselor. “Over the years, we had some that we had to ‘fire’ as they were just not willing to make improvements. Most have taken our coaching to heart and implemented processes to comply with our requirements. In so doing, they’ve improved working conditions for their employees.”

For all that, though, auditing is far from foolproof. Quality and intent can vary, and it’s undeniable that abuses and unsafe conditions will persist if a push for betterment isn’t made. Still, even a tragedy like the collapse of the Rana Plaza factory can fuel improvement of regulations and audits, some experts say. “Rana Plaza was a watershed moment. We only knew the lethal risk – the building collapse – after the fact,” Fenton says. “Now that more is known, most audits have incorporated structural assessments aimed at identifying potential issues and avoiding such tragedies in the future.”

Individual companies engaged in sourcing and auditing can improve, too. Since the 2018 forced labor scandal, Badger Sportswear says it has enhanced its social compliance program. The supplier says it’s audited all owned and contracted facilities and implemented an annual monitoring program. It’s also launched an online management system that enables the company to more effectively track closure of corrective actions at factories. Badger has trained 3,000 workers in its global supply chain on its code of conduct and worked to improve supply chain transparency. “We know we have more work to do, but we remain committed to adopting best practices,” says Diane Hampton, Badger’s director of corporate social responsibility.

While improved audits and better follow-through on corrective actions won’t bring back the people who lost their lives at Rana Plaza or undo the time internees in Xinjiang have spent in forced labor, advocates say they could help save others from similar fates and enable brands to say with greater assurance that their supply chains aren’t tainted with exploitation and abuse.

“Social compliance auditing is imperfect at best,” says WRAP’s Lennon. “Even acknowledging, though, that there’s always room for the industry to improve doesn’t take away from the excellent work that’s been done and the positive outcomes that have resulted. Even the harshest critics cannot dispute that, broadly speaking, working conditions in manufacturing facilities are better today than they were two decades ago.”