annual report 2002/2003 — harnessing difference
achievements/members’ commitment
improving corporate
performance:
How companies performed
Companies’ reports show similar levels of activity to those of last year but improvements in qualitative measures such as more effective interventions.
The 2002 reports showed a consistent level of activity across most of the membership, but a levelling-off of improvements on key numerical indicators, such as the number of evaluations conducted and the number of suppliers audited (see Table 1 - How ETI member companies performed in 2002, and Table 2 - Comparison of key performance indicators from 1999 - 2002 - these links open in a new window, so that you can refer to the figures as you read the text). However, the reports indicated considerable improvements in less quantifiable areas of performance, such as better internal management systems for ethical trade, more effective interventions in key supply countries, and stronger links with local trade unions and NGOs.
Key trends and issues in 2002 included:
- Alignment of company codes with the ETI Base Code: All
corporate members who have their own company code are committed
to aligning this with the ETI Base Code. Last year, we were concerned
that 11 members had significant gaps between their company code
and the Base Code. The 2002 annual reports showed significant progress.
Four of the 11 companies have now addressed these gaps, two others
have confirmed that they actually audit against the ETI Base Code,
and a further two have committed to align their codes by the end
of 2003. Nevertheless, there is little room for complacency. This
still leaves four companies with significant issues, and the reports
indicate that some companies who have adopted the Base Code in
full are interpreting the standards in a way that is inconsistent
with the ILO Conventions on which they are based. We must therefore
work harder to create greater consistency in interpretation of
the Base Code principles.
- Top management commitment to ethical trade: We
were pleased that the reports demonstrated a high-level commitment
in nearly all members, as experience indicates this is vital to
success. Fifteen out of the 25 reporting companies informed us
that the most senior champion of ethical trade was a board member
and another six reported that the most senior person responsible
reported directly to a board member.
- Communication and training activities: Companies
need to ensure that all in the company and the supply chain are
fully committed to an ethical sourcing strategy. The reports showed
a broad range of activities to communicate each company’s
rationale, commitment and approach to code implementation, and
to develop necessary skills. However, most communication and training
activities targeted internal company staff and direct suppliers,
with little communication with indirect suppliers, workers and
other stakeholders. Recent experience has emphasised the importance
of worker education right along the supply chain in ensuring effective
code implementation.
- Extent and quality of monitoring programmes: An
effective programme to monitor the labour practices in their supply
chains is a central aspect of a company’s commitment to ethical
trade. In numerical terms, corporate auditing activity showed little
change from last year (see Table 2). Qualitative assessment of
company programmes revealed that most companies prioritise the
auditing of first tier suppliers. This reflects their perception
that any labour issues found here constitute the highest risk to
their reputation, and also that this is where they have most influence
and ability to effect change. It is also likely to reflect the
limitations in capacity, skills and confidence of company staff.
At the same time, recent ETI work has shown the likelihood of many
serious labour problems in the further reaches of the supply chain.
We have recently uncovered instances of very poor wages paid to
homeworkers in the UK and child labour in sub-contracted workshops,
to give just two examples. This raises questions about how we expect
companies to balance these often-conflicting priorities.
Companies prioritise the auditing of first tier suppliers. Our experience shows that serious labour problems are more likely in the further reaches of the supply chain. The challenge is how to extend auditing to these levels.
- Corrective actions: The ability of companies
to improve labour practices where problems are found, that is,
their ability to implement corrective actions, is a vital indicator
since this determines whether codes ultimately make a difference
to workers. The total number of significant corrective actions
reported were similar to last year and equally patchy in scope:
health and safety, wages and working hours again predominated.
A substantial proportion of the corrective actions continued to
relate to process issues, such as providing documentation or establishing
procedures. For example, 10 per cent of all corrective actions
referred to providing workers with written contracts or copies
of relevant procedures. Nevertheless, many concrete and substantive
improvements to working conditions were also reported, for example
increases in wage rates, payment of overtime premiums, reduction
in the number of overtime hours worked, and establishment of collective
bargaining agreements.
- Independent complaints mechanisms: These aim to provide a secure channel for workers to express their concerns about working conditions, and in particular to raise issues overlooked in a sourcing company’s auditing programmes. As such they provide an important source of additional information about labour conditions. We were therefore pleased to note a substantial increase in the number of companies developing or operating a confidential complaints mechanism, from five companies in 2001 to 12 in 2002. That said, we recognise there is considerable room for improvement in both the quality and quantity of activity in this area.
Refining our targets
The key trends and issues revealed as a result of the more rigorous and qualitative assessment carried out this year pointed to a number of weaknesses with the current reporting process. Our Board concluded that, while the current reporting process was appropriate in the early stages of ETI’s existence, both corporate performance and ETI learning has moved on. We see a need to develop a more sophisticated review process which allows us to differentiate between different types of company, for example, a supplier and a retailer, when setting expectations and assessing performance. The process also needs to be more dynamic, providing clearer guidance to companies on how we expect them to progress over time.
The Board agreed in principle that the process will be revised so that:
- Specific performance criteria and priorities for action will be defined for four different types of company – food retailers, food suppliers, general merchandise retailers and general merchandise suppliers. We will define priorities for different stages of a company’s progress in implementing an ethical sourcing strategy;
- We will ask each corporate member to set their own targets for a specified period based on these performance criteria and priorities, which will then be discussed and agreed with ETI;
- Annual progress will be reported and measured against these agreed targets.
We are now consulting among the wider membership on the timescale and mechanisms for putting these changes into practice.
We now need a more sophisticated system for defining
and assessing what constitutes ‘good practice’ that
reflects the real progress we have made and provides
clearer guidance to companies on how we expect them
to progress over time.
See also:
Tables summarising companies' performance (as referred to above - opens in new window)
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