Learning from the financial sector of effective auditing
By: Stefan Seidel, Head of Corporate Sustainability at Puma
Like so many other brands, we started auditing our supplier base for social standards in the 1990s. Since then, we have conducted over 5.000 compliance audits from Argentina to Zimbabwe and continue to add another 400 audits to this list every year. At the same time, our suppliers complain about having to endure up to 10 compliance audits in a month (!), sometimes resulting in conflicting corrective action plans.
From a brand perspective, there is clearly a limit to how far you can reach with individual brand audits. This holds true both in terms of audit coverage in the lower tiers of the supply chain as well as in terms of brand leverage to trigger systemic changes at a supplier with multiple customers. And then there is the inefficiency of the system, where individual brands each invest hundreds of thousands of Euros or Dollars per year just to receive audit reports that are similar to their industry peers. Suppliers spend a good portion their compliance teams time escorting brand auditors rather than working on real improvements for their workers or engaging with their other stakeholders.
Many efforts have been made in the past to cut through the Gordian Knot of brands believing the systems they developed on their own are better than others and not trusting external monitors, compliance organizations protecting their own business model and suppliers signing up to whatever it takes to get them onto the approved supplier list. So far the success of these efforts has been rather limited. It seems hard to believe that the apparel and footwear industry cannot come up with a more efficient model.
Let’s assume for a moment that the financial market would operate in a similar way. That would mean that every shareholder or even potential shareholder of a company would send his own auditor to each company he intends to buy shares from. After each audit he would give those companies binding recommendations on how to improve their financial performance. Sounds insane? Well that is what many of us are doing to our suppliers.
Turning that argument around, why can’t we adopt a similar model as in financial auditing and reporting. One globally accepted accounting standard, a list of highly qualified and personally accredited auditors working for credible auditing firms who lose their reputation if anything major goes wrong (remember Arthur Anderson). To that add a requirement to publish the results of the audit, personally signed by the lead auditor each year. Then the shareholders (brands) pick and choose their shares (orders) based on their individual performance criteria.
We believe it is possible to make this happen. All it takes is a global reference framework (i.e. the agreed set of compliance/performance indicators), reputable audit organizations and personal accountability for the auditors (i.e. a professional auditor accreditation scheme) as well as full transparency in the system (i.e. the publication of the factory performance and the auditor findings).
The work started by the SLCP has the potential to deliver all of the above over time. Therefore, we fully support the SLCP – in our best brand interest but also the interest of the Millions of workers in our industry, from Argentina to Zimbabwe.
