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NEC ‘Opens the Kimono’ to Third-Party Auditors

{complink 3638|NEC Corp.} deserves credit for opening itself up to a third-party audit of its corporate social responsibility (CSR) practices, including the health and safety of the workers within its extensive supply chain.

The 2010 audit was conducted by the International Institute for Human, Organization, and the Earth (IIHOE), a non-profit organization dedicated to promoting “balanced and democratic development for all life on earth.” Alongside its main activity of providing management support to civic groups and social entrepreneurs, IIHOE also offers CSR-related support to leading companies.

The IIHOE report is extensive and covers NEC's corporate conduct, environmental compliance, and human rights and labor practices. In its supply chain audit, the IIHOE required partners to fill out questionnaires and provide documentation of compliance, supplemented by on-site visits. While the IIHOE and NEC found no outright non-compliance, the report notes there are a number of areas in which partners can improve.

“We found that awareness of CSR norms and the CSR promotion structure were almost satisfactory at all of the 57 suppliers,” says the IIHOE. “However, they could improve their ability to monitor the actual compliance status and to ensure rigorous internal enforcement. The results of this analysis showed a similar trend compared with the previous year.”

The IIHOE and NEC are providing the following support for suppliers' improvement measures:

    Together with feedback reports, we distributed our human-rights training materials, which were prepared in fiscal 2009, to suppliers who responded to the CSR-related activity status survey for the first time, as a means of supporting their human-rights awareness-building activities, an area where greater efforts would be desirable going forward.
    Meanwhile, stronger information security, environmental measures to promote a healthier natural ecology, and quality assurance for safety and reliability are becoming increasingly important. In light of these market conditions, NEC supports information security and quality management activities of software suppliers by holding seminars and assisting with the activities of suppliers’ subcommittees. For hardware suppliers, NEC supports quality and environmental activities mainly through on-site patrols. In addition, In addition, by incorporating these activities into the evaluation criteria of our supplier award system, we are encouraging suppliers to conduct CSR activities more independently.

Here are some additional procurement-related details from the audit:

    NEC has established the NEC Group Procurement Policy and is using this policy to develop internal controls for CSR and expand them to suppliers. Regarding purchasing ethics and other forms of internal control, NEC has newly established the Basic Rules for Procurement and ensures that all employees remain in compliance with the regulations. To strengthen procurement-related internal controls, we have reviewed specific business regulations in the purchasing process, and are striving to make all staff members involved in purchasing activities fully aware of them by holding regular training sessions.
    Since fiscal 2010, this policy has been applied to NEC Corporation and all NEC group consolidated subsidiaries in Japan engaged in materials procurement, and management is rigorously enforced.
    NEC's CSR activities in the area of procurement are carried out by staff members responsible for purchasing. The Supply-Chain CSR Subcommittee and the Consolidated Procurement Management Meeting are convened every six months to propose and promote specific measures in this area. In fiscal 2010, the committees examined issues including the selection of suppliers subject to CSR questionnaire surveys, management of survey progress, and measures to support independent CSR activities by suppliers.

NEC provides links to all the documents and standards it uses in the audit as well as the methodology. I can find little fault with the processes or the organization that conducted the audit. I give NEC a lot of credit for opening its doors and conducting such a thorough investigation of its supply chain. Although NEC was flagged for having a manufacturing partner with questionable practices, it's clear this company was the exception and quite possibly one that “fell through the cracks.” It's impossible for any company — NEC, Apple, Dell, or Hewlett-Packard — to be completely responsible for the activities of 100 percent of its business network. But the efforts of companies such as NEC should be recognized and commended.

11 comments on “NEC ‘Opens the Kimono’ to Third-Party Auditors

  1. DataCrunch
    February 27, 2011

    Hi Barbara, thanks for sharing some more insight on NEC’s CSR efforts.  It’s good to see more and more companies conducting independent third-party audits in these areas.    

  2. Ashu001
    February 27, 2011

    Barbara,

    As a veteran in Software development,I am not sure if all these huge words mean anything but words…

    After all,people can say lots of things on paper but actual implementation thats completely another story…

    Still I especially like what you have to say here,

    NEC provides links to all the documents and standards it uses in the audit as well as the methodology. I can find little fault with the processes or the organization that conducted the audit. I give NEC a lot of credit for opening its doors and conducting such a thorough investigation of its supply chain.”

    Regards

    Ashish.

  3. Taimoor Zubar
    February 27, 2011

    I also think it's a great move by NEC to allow the audits. The best part is that the audits are being conducted by independent third-party organizations. This gives them much more credibility. It is easy for companies to influence the processes and findings of internal audits, and that's why third-party ones are much better.

  4. Hardcore
    February 27, 2011

    I always worry when  the words “3rd party independent agency” are used.

    The following post does NOT relate to NEC, but rather is a reflection of how some retailers and independent 3rd party inspection agencies  behave.

    Most if not all of these agencies are businesses, and like any other businesses they have to turn a profit, as such they are not really fully independent, well certainly not from the money angle.

    I have seen first hand, exactly what goes on with at least two very big international names and will give the following example:

    A major retailer decides to get on the “ethical auditing band wagon”, but not for the reasons one would expect. (though they did stick some rather striking photos in their glossies showing happy workers in China, I have counter photographs showing the reality)

     “Ethical auditing” should not easily be used in a negative way to impact other businesses, however this retailer found rather a unique use for 'ethical auditing'.

    This retailer insisted that all ethical audit reports from agents were made available so that they could 'audit, the auditors”, even when 3rd party auditing was used. In reality they passed the 3rd party audit details to their corporate sourcing teams so that they could bypass the supply chain, it could be suspected that since the 3rd party auditors actually had an account with the retailer that 'cross contamination' from other less important agency audits  may have facilitated the 'targeting'.

    Each time the retailer needed a source for a product, they would use an agent, get them to perform a full disclosure of the factory, then bypass the agent.

    The retailer would do this under the pretense of supplier training, where every few months they would invite the factory managers/owners for private training, which in reality was actually a sourcing meeting where the retailers sourcing staff would approach the factories directly, offer to out do the price the 'agent' was purchasing at and also to ensure the factory had less problems with auditing than if they used the agent, what is even more unacceptable was that the 3rd party audit agency was present in these meetings to give it a bit more of a 'formal' feeling.

    One result of this was that the agents were removed from the supply chain, the retailer received a lower price for the goods, but the savings they made from eliminating the agents from the supply chain were not passed on to the final customers or the factories, so the factory workers still got shafted because the retailer eventually squeezed the factory harder than the agent could, plus  for the 3rd party auditors to keep such a large corporate account they assisted in this fiasco.

    As a result I'm always a bit wary when a large corporation ties up to another large corporation under the guise of independent 3rd party auditing.

    HC

  5. Ms. Daisy
    February 27, 2011

    This news is certainly a breathe of fresh air. The standards and methodologies that take into account the work environment, occupational health related issues, and quality assurance certainly reflects a thorough job on the part of the third-party auditors.

    NEC has shown that auditing of its supply chain can be done and accountability by all in the supply chain can be achieved. The company's transparency in the release of all the reports is commendable and will certainly boost its credibility. Hopefully this will begin to change the workplace environment and help improve the quality of health of the workers in these areas.

  6. Ms. Daisy
    February 27, 2011

    HC:

    There is always some dubious companies and equally unethical auditors in all spheres of business. The ones you reported is definitely a pair of bad auditor and a colluding company or company executives. I don't want to believe that the major supply chain giants will want to risk their reputation in such fraudulent transactions with the likes of the third party company you described.

    The key is to use reputable companies with dependable track records. Independent third party auditors are still the best bet when it comes to monitoring of contracted work and following up on human rights compliance the complex supply chains.

  7. Hardcore
    February 27, 2011

    Hi Daisy,

    These are really big names and they ARE supposed to be a reliable 3rd party inspection company….. So much so that I guess anyone would recognize the names even in China. They are by no means tin-pot/two bit companies or fly-by night merchants.

    Such dodgy operators would not even merit a mention in my post because there are literally hundreds of them  breaking every manner of regulation, including Weee & RoHs regulations.

    I am at the thin end of the wedge so to speak and am not bound contractually to any of these people, but due to my contacts in China manufacturing I get a fairly clear Idea of what goes on, plus I have been involved directly with a number of these companies over the last decade and seen first hand what many are capable of even with big name 3rd party ethical auditing.

    That is not to say every company is the same and there are a good few companies that operate ethically, but then no one is really interested in that, because they are expected to behave in such a manner.

    If for example I was to  say that a particular company operated in a highly ethical manner when doing business in China, then it would hardly be of groundbreaking interest, but I  feel that recent information needs to be balanced out what with so many suppliers offering a sudden turn of conscience related to ethical exposure.

    What is even more of an issue is that the health of final foreign customers (not just factory workers) is also being cast to the wayside in the quest for profits.

    As a buyer once said to me, “It does not matter that there is Zinc in the food product, because I can buy it as a health/vitamin supplement anyway”.

    When I pointed out that there is a big difference between elemental Zinc and a Zinc compound/Zinc salt he was at a loss to understand the difference.

    And that is the root of the issue.

    HC.

  8. Ms. Daisy
    February 27, 2011

    Hi HC:

    I clearly hear your concern regarding the depth of corruption in China in your postings! I am also not naive about the unscrupulus nature of many Chinese businesses. But for as long as the manufacturing companies and suppliers outsourcing to Chinese companies continue to actively or passively engage in the human rights violations and shady audits, then they are also as bad as the Chinese and need to be exposed.

    The silver of hope that I gathered from your post “That is not to say every company is the same and there are a good few companies that operate ethically–” shows that there are opportunities for good choices by these companies and their lack of interest in taking advantage of such options because of high profits is unacceptable.

     I too hope that the recent  sudden turn of conscience by suppliers even if it is because of current scrutiny on related ethical exposure will be a new start.

  9. Barbara Jorgensen
    February 28, 2011

    HC thanks for you detailed posts, your willingness to shre first hand information and the response. I hope our readers get as much from the discussions as I do!

  10. Backorder
    February 28, 2011

    Thanks for sharing your experiences, HC. Really, the insights magnify the report manifold. I have seen a progressively greater focus being driven in the CSR and labor practices. With companies like Apple coming out in the open about the status of such practices with their suppliers says volumes about the responsibilty head honchos are willing to own.

  11. stochastic excursion
    March 1, 2011

    The lack of credible institutional oversight in global trade agreements is a fact that hasn't escaped opponents of globalism in the last 20 years.  Leaders, largely from academia, from where you would expect people who would play a part in any truly disinterested oversight, have been active in protesting the peremptory actions of the sponsors of GATT and World Economic Forum transactions.  To these protests the sponsors of the globalization movement have turned a deaf ear.  Now the sad fact of extreme cases where young children work 16-hour days in a factory for months on end come to light, to bland assessments that conditions are “improving”. 

    In any industry third parties usually play a role that makes it easier to do business.  An example is GAAP in accounting.  As we've seen in the wave of accounting scandals, the institutional role of these third parties makes it necessary for parties with a strictly humanitarian outlook to impose their agenda.  The UN could be a boon in this case, but from many standpoints including funding, their interests could be taken as compromised.  My belief is a diversity of voices is probably best, and these are most likely to be formed out of academia on an ad hoc basis.

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