Requiring compliance, offering support
How Tchibo monitors the implementation of social standards
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The Social Code of Conduct (SCoC) is indispensable in our endeavour to ensure socially responsible working conditions in the production of Tchibo consumer goods. Additionally, regular, independent checks give us and our suppliers an overview of where they stand in terms of implementation.
We want our inspection and monitoring procedures to be of high quality. For this reason, when it comes to checking our production facilities, we work with independent experts: the auditing organisation STR-RS, which is accredited by the NGO “Social Accountability International” (SAI). This accreditation ensures that our social audits are conducted in accordance with globally consistent, high-quality standards.
Four steps to assessment: the social audit procedure
During the audits, all stipulations of our Code of Conduct are checked and assessed individually. The overall result of the inspection is determined by the most critical result found in each thematic area. This procedure ensures that we give all social standards the same importance and that the necessary corrective measures are put in place for each individual aspect of the standards.
The auditors make assessments expressing the degree to which the standards examined are adhered to (“in compliance”) or to which “concerns” are evident. Concerns are divided into “minor concerns”, “major concerns” and “zero tolerance”; the latter refers to violations of what are known as zero-tolerance issues such as child labour or working hours not being recorded. If the supplier has refused to allow an audit to be carried out, this is recorded as “audit denied” and treated in the same way as a “zero tolerance” violation, which means that the manufacturer is barred from receiving orders until the zero-tolerance issues have been rectified and re-checked in a social audit.
Differentiated and efficient: the auditing process
The system by which we inspect our suppliers comprises four different types of audit. The audit type used is dependent on two factors: the point in time at which the audit is carried out, or the status of the contract between us and the supplier, and the result gained by the production facility in the previous audit. The following diagram illustrates our auditing process. You can find information on the individual types of audit by moving your mouse over the boxes.
To a limited extent, we recognise other social audits as proof of compliance with social standards in our production facilities. These audits include SA8000 certificates and audits conducted in the context of the Business Social Compliance Initiative (BSCI) and assessed as “good”.
We don’t just issue warnings, we also give specific support: what happens when violations are found
Production facilities which do not comply with the SCoC are subject to in consequence, which vary according to the type and severity of the violations found. Immediate termination of the contract between us and a supplier can threaten its continued existence and the employees’ livelihoods; this is the case, for example, where a substantial part of the company’s capacities are engaged with Tchibo contracts. For this reason, we always begin by working together with the manufacturer to achieve improvements, using methods such as specific training. Our WE programme (Worldwide Enhancement of Social Quality) serves to develop methods and concepts for this.
If, however, the supplier refuses to be audited or we still find serious infringements after the fourth follow-up audit, an inter-departmental body at Tchibo takes a decision on termination of the business relationship. This body consists of decision-makers from the purchasing, audit management and corporate responsibility departments. A termination is done in a responsible manner.
The limits of auditing - and our response
We take very seriously any violations of labour law and social rights found in the course of our audits; they motivate us to redouble our efforts in this field and adjust our measures where necessary. At the same time, we are aware that audits as social responsibility instruments meet their limits in certain areas. Social audits generally last one to two days and thus are effectively snapshots, conducted by neutral, independent auditors.
Audits are good at uncovering clearly visible violations. Where it becomes more difficult, however, is in relation to less evidently visible infringements, such as cases of discrimination or violations of employees’ freedom to join unions and enter into collective bargaining. Many employees find it difficult to speak openly to strangers about such issues, which are often very personal or political.
Lowering the threshold: an anonymous complaints possibility
We have lowered the threshold for employees to communicate with us by establishing a service for them to send complaints to us by email, via which employees can make anonymous reports on violations of social and labour standards. We also obtain information on violations from our partners in NGOs or WE programme coaches.
When indications of infringements are brought to our attention, we immediately undertake an assessment of the status quo, collating all information available to us on the production facility in question: reports from visits, the results of social audits carried out at the company and our buyers’ experiences. If necessary, we also call upon external experts from institutions such as NGOs and trade unions. We validate the results by carrying out what are known as confidential offsite interviews with further employees off company premises. If the evidence we gather bears out the indications of infringements, we approach the manufacturer and negotiate a schedule of measures to remedy the reason for the complaint.
Our biggest challenges: securing living wages and ensuring the right to freedom of association and collective bargaining
Transparency of violations of social standards not automatically starts a process of improvement – especially when the causes are complex and extend beyond the sphere of influence of individual manufacturer or contractual relationship. Securing living wages, ensuring maximum permitted working hours and employees’ rights to join unions and enter into collective bargaining are great challenges in this context.
You can find further information on these major challenges here.
Living wages
All developing and emerging countries which produce consumer goods have legal minimum wages are defined by the legislator. However, these minimum wages are generally insufficient to cover the basic needs of employees and their families and leave a remainder for them to use as they choose. The introduction of such “living wages” is often difficult due to international price competition among retail corporations, to which is added local governments’ concerns that their region will lose its competitiveness if labour costs are too high. As part of the WE programme, production sites can raise their employees’ wages provided the rise is connected with improvements in productivity and quality. SA8000-certified production facilities pay living wages anyhow.
Individual retail companies cannot force their suppliers pay living wages. Suppliers very rarely produce exclusively for one company, as such a practice does not make business sense for them. The logistical issues around ensuring that workers’ indeed receive the higher wages are an example for such complications: Variations in purchase prices and differing calculations for comparable or even identical products can create considerable competitive pressure for all involved and can lead to destructive competitive distortion. The solution can only lie in harmonisation of legislation, with uniform competitive conditions for all international retailers. This, in turn, can only come about if all relevant stakeholders are able to find a consensus at societal level: this includes governments, suppliers, trade unions, employers’ associations, retail companies and NGOs.
We are participating in developing such a consensus in the context of our membership of multi-stakeholder organisations (GLOSSARY). Our calculation of what constitutes a living wage is based on the benchmark issued by the Asia Floor Wage Campaign (GLOSSARY). The wage levels defined here for Asian countries of production were calculated with the involvement primarily of local trade unions and NGOs, making them a valid basis for collective bargaining of actual wage levels on the ground. We welcome the AFW Campaign’s efforts to introduce an internationally valid, living wage for workers in Asia. You can view our statement on the AFW Campaign here.
Many producing companies find it difficult to adhere to local laws on maximum permitted working hours. It is indeed the case that reducing hours worked is a complex process, due to various factors and perspectives at play in relation to this issue. Managers of production facilities will primarily see reductions in overtime as translating to less time for production and therefore lower production output, while employees complain of a drop in income from the loss of overtime hours which are generally paid at double the hourly rate. Legally defined minimum wages are usually too low to adequately support workers and their families. For this reason, workers often have an interest in doing overtime, especially where they are migration workers far from home and therefore able and willing to use their leisure time to work overtime.
However, it is established that if working hours are too long, productivity falls and product quality decreases due to employees being exhausted and their capacity to perform effectively being consequently reduced. The risk of workplace accidents and disease is added to this. Excessive overtime is attributable to a lack of efficiency in production processes at the facilities, a matter which can be complicated by purchasing processes at the ordering retail companies. Last-minute design changes for an order that has already been placed are an example for such complications. Through WE we help managers, workers and buyers express their perspectives. This is the starting point to negotiate changes, which take into consideration all interests. The likelihood of implementation rises through this engaging process. Our experience is that it pays off: increased productivity, increased profits, higher wages – and less overtime. The factor that makes this success happen is dialogue encompassing all involved, following the WE methodolegy.
Written contracts of employment provide proof that an employer-employee relationship exists and supply a basis for the rights and responsibilities of both sides: they are thus of great importance for workers in the countries where our goods are produced. Above all in China, prior to the introduction of changes in labour law, workers could not generally expect to receive a written contract of employment. Since 1 January 2008, employees have been able to sue their employer for compensation if they do not receive a written contract within the first year of their employment, and in such cases are legally entitled to twice the year’s wages. As this constitutes a financial risk for producing companies, we have already seen notable improvements in this area.
Tchibo’s requirements of its suppliers with regard to documentation of the age of its employees are extremely rigorous. Even if only a small number of proof-of-age documents are missing during an audit, this is recorded as a serious violation and leads to a follow-up audit. The objective of this policy is to raise awareness of issues around child labour among companies who produce for us and motivate them to place high value on full documentation of age when employing workers.
Regarding child labour we are faced with several issues in the production countries: repeated occurrences of missing or forged birth certificates and other proof-of-age documents giving rise to difficulties in ascertaining employees’ age beyond doubt. An additional issue in China is a discrepancy between national and international legislation. The stipulations of the International Labour Organisation (ILO) define young people under the age of 15 as children and generally prohibit their working. In Chinese law, by contrast, the minimum working age is 16, while compulsory schooling ends at 15 years of age. For this reason, it is common in China, particularly in low-income families, for young people to work from the age of 15 to help boost their families’ income. As Chinese law forbids this, our audits regard the employment of 15-year-olds as a “zero tolerance” violation of the prohibition on child labour. In these cases, we work with the manufacturers to find a solution that causes as little hardship as possible and includes a managed process of returning the affected workers to their families.
Occasionally, auditors from the firm we use for our audits uncover irregularities with regard to recording of working hours, calculation of wages or payment of overtime. Deliberate attempts to mislead auditors, attempts to bribe them or prepare employees for the interviews with the auditors are all regarded as very serious matters. This kind of behaviour reduces transparency on the situation in factories and therefore makes it more difficult to initiate processes of improvement.
If we uncover such irregularities, we generally bar the manufacturer concerned from receiving further orders. We find that the threat of withdrawing further contracts from the supplier tends to have a powerful disciplinary effect; we have not yet experienced a repeat occurrence. We are, however, aware that such behaviour arises out of the complexity of the issues involved; producing companies are overwhelmed with the implementation of social standards. Additionally, it is often the case that producers lack confidence that giving an honest account of issues and then by revealing non-compliances will not be punished by the loss of a contract. Our ongoing dialogue between purchasing, our suppliers, and our WE programme, are creating the trust required for us to work together on improvements and support our suppliers as they tackle these complex issues.
Audits rarely mention findings on discrimination against employees or violations of freedom of association and collective bargaining rights. This does not necessarily mean that such concerns do not exist. Both relate to very sensitive issues. Discrimination may include extremely personal experiences suffered by individuals, such as sexual violence or the marginalisation of minorities. Employees who draw outside attention to violations of freedom of association, meanwhile, are frequently subject to reprisals. For these reasons, it is generally very difficult for auditors to identify infringements of standards in these areas. They enter a production plant as inspectors from outside, and as such are rarely able to win employees’ trust. This situation is a particularly clear illustration of the limits of audits as an instrument. As part of the WE programme, we are trialling innovative approaches to support employees’ access to these rights.