As stakeholder expectations and global regulations evolve rapidly in the same direction – towards a zero-tolerance for unethical behavior – companies are under increasing pressure to demonstrate social compliance.
Social compliance is more than just adhering to legal requirements or publishing CSR reports.
It’s about ‘walking the talk,’ demonstrating alignment to regulatory frameworks, and a commitment to ethical labor standards, human rights and environmental responsibility. Not only within your operations but across the supply chain.
Social compliance audits are powerful tools in this highly-scrutinized environment.
In this guide, we’re delving into the critical role of social compliance audits in safeguarding CSR and building stakeholder trust.
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The link between social compliance and business success
What is trust worth to your organization?
According to the latest PwC Trust Survey, 93% of executives agree that building and maintaining trust improves bottom-line performance.
Almost half (42%) acknowledge that productivity is at risk if employee trust falters. The same number (42%) said customer engagement was at risk if consumers lost trust, along with the ability to expand operations (41%) and earn profits (38%).
Even funding is threatened, with 41% of execs saying that the cost of capital would increase and 38% fearing access to it would dry up.
All these figures reinforce a feeling you probably already have – that trust is no longer simply a social virtue. It’s a business imperative.
So, it’s worrying to learn that 94% of execs experience challenges when trying to build trust.
The role of social compliance
Companies are increasingly evaluated on ethical practices, social responsibility, and sustainability initiatives. These attributes complete the picture of organizational performance, filling in the gaps between financial results and regulatory compliance.
Once the picture is whole, stakeholders can finally answer their most important question: “Can I trust this company?”
This, in a nutshell, is social compliance.
Social compliance refers to your organization’s commitment to upholding ethical labor practices, human rights, and environmental sustainability throughout its operations and supply chain.
It involves adhering to laws, regulations, and internationally recognized standards that:
- Protect workers’ rights
- Ensure fair wages
- Promote safe working conditions
- Prevent exploitative labor practices
Beyond meeting legal requirements, social compliance reflects your company’s values and dedication to corporate social responsibility (CSR). It signals to stakeholders – employees, customers, investors and the community – that you’re committed to operating with integrity and prioritizing social and environmental well-being in business decisions.
What is a “social compliance audit”?
If your organization is serious about social compliance, you will have a social compliance management system in place. Like a regulatory compliance management system, this serves three equally important aims:
- Ensure your organization is compliant with social laws
- Produce evidence to prove social compliance
- Proactively identify and address social non-compliance risks
At the heart of the system are social compliance audits.
A social compliance audit, also called a social audit or ethical audit, is a systematic review designed to assess how well your company is adhering to ethical labor standards and human rights principles across the supply chain.
The purpose of the audit is to verify that your operations – as well as those of suppliers and partners – meet legal and voluntary social responsibility commitments.
It’s a critical process for complying with laws and regulations and achieving broader CSR goals.
What gets audited?
- Worker conditions: Ensuring fair treatment, no discrimination, proper working hours, and respectful workplace practices.
- Fair wages and benefits: Verifying that workers are paid at least the minimum wage, receive mandated benefits, and are compensated fairly for overtime.
- Health and safety: Assessing workplace safety conditions to ensure compliance with occupational health standards, the provision of personal protective equipment (PPE), and appropriate emergency preparedness.
- Child labor and forced labor: Confirming that no underage workers or individuals subject to forced labor are employed.
- Freedom of association: Ensuring workers have the right to form and join trade unions and engage in collective bargaining without fear of retaliation.
- Environmental sustainability: Examining practices that affect environmental impact, such as waste disposal and resource management, particularly where environmental responsibility is part of the company’s CSR goals.
The process typically includes interviews with employees, a review of documentation (such as payroll records and safety logs), and site inspections to ensure that conditions on the ground match the company’s stated policies.
Frameworks you can follow
There are several frameworks and standards for conducting social compliance audits. Which framework(s) you choose to follow depends on your organization’s unique characteristics, but some of the most common include:
- SA8000: Often seen as the global benchmark for social compliance, SA8000 is an auditable certification standard that provides a framework for social accountability across your supply chain.
- SEDEX and SMETA: Supplier Ethical Data Exchange (SEDEX) is a global membership organization that provides tools and resources for responsible supply chain management. You can become SEDEX certified under the SEDEX Members Ethical Trade Audit (SMETA) standard.
- Responsible Business Alliance (RBA) Code of Conduct Assessments: A set of standards that cover a wide range of ethical and social issues.
- Worldwide Responsible Accredited Production (WRAP): A certification program that ensures that factories meet a set of labor standards.
- Code of Conduct (CoC): A set of principles that companies can adopt to guide their ethical and social practices.
- amfori BSCI: A business social compliance initiative that provides tools and resources for responsible supply chain management.
- Social & Labor Convergence Program (SLCP): A global initiative to harmonize social and labor data collection and reporting.
- Ethical Trade Initiative (ETI) Audits: A network of organizations that promote ethical trade.
- ISO 26000 Corporate Social Responsibility Guidelines: A set of guidelines that provide guidance on implementing CSR initiatives.
Three types of social audit
1. Internal (first-party) social audit
An internal social audit is conducted by the company itself. This type of audit can be a cost-effective way to identify and address non-compliance issues. However, you need to be aware of internal biases.
2. Vendor (second-party) audit
A vendor audit is conducted by one of your key suppliers or vendors. Think of it as another company in your supply chain conducting an internal audit; your social compliance comes under scrutiny but isn’t the core focus. This type of audit can provide an independent snapshot of your supply chain, but it might not cover all aspects of your operations.
3. Independent (third-party) social compliance audit
There are two kinds of external audits; official and unofficial. Official audits are often required for certification (e.g. for SA8000) and involve accredited bodies, while unofficial audits are less formal but still offer valuable insights into areas for improvement. Both enhance credibility and transparency.
Four reasons regular social compliance audits are essential
1. Contribute to corporate social responsibility goals
Regular social compliance audits keep your operations aligned with long-term CSR strategies.
Audits provide detailed assessments of labor practices, environmental impact and ethical business conduct. Your organizational leadership can use these insights to make CSR decisions, adjust investments in various initiatives, and track accurate social responsibility metrics.
2. Minimize non-compliance risks
Non-compliance exposes your organization to risks like reputational damage, legal penalties, and disruptions to business operations. (This is true whether we’re talking about social, regulatory, industry or data privacy non-compliance).
You can minimize these risks with an effective social compliance management system and regular ethical auditing. By proactively scanning for potential issues and continuously improving social compliance standards, you’re getting ahead of emerging risks.
3. Demonstrate social accountability
Routine audits provide clear evidence that your company is holding itself accountable for its practices.
By regularly evaluating and reporting on performance in areas like worker welfare and environmental responsibility, you don’t just pay lip service to CSR. You demonstrate transparency and ethical integrity.
That resonates with customers, investors and partners, doing a lot of the heavy lifting to build trust.
4. Earn community trust
Local communities are often an organization’s harshest critics. You can earn their trust and support by demonstrating your commitment to ethical and sustainable practices.
Undergoing independent audits and, crucially, making the outcomes available to community stakeholders, shows you’re ready to engage in productive dialogue.
Overcoming challenges in social compliance
Complex standards
Social compliance frameworks can be complex and difficult to understand. Not to mention the large number of standards – we outlined nine above, but that’s not an exhaustive list.
Thankfully, it’s relatively easy to streamline the process.
Focus on adopting widely recognized frameworks like SA8000 or SEDEX to create a unified compliance strategy. Using a single, comprehensive standard as a baseline allows businesses to meet multiple requirements simultaneously, while training staff on these standards ensures consistency.
Leverage emerging tech: Digital platforms that centralize compliance data and related workforce analytics metrics can further streamline efforts, making it easier to track progress and demonstrate adherence.
Cultural barriers
Social compliance audits are particularly relevant for organizations with a global supply chain. These businesses are also the most likely to encounter cultural differences in business practices and labor standards, which can be challenging to overcome with an ad-hoc approach.
If that resonates with your experiences, there are a few ways that social compliance audits can help:
- Provide training for employees and suppliers, using the social compliance standard as a framework to align on ethical expectations and behavioral norms.
- Encourage open and honest dialogue between different cultures to build understanding and solve social compliance challenges together.
- Clarify your goals when asking partners to undergo an ethical audit to prevent them from interpreting the audit as a sign of mistrust.
Tailor training: Be mindful of local customs, laws and traditions when implementing social compliance training. Adapt the content and structure of social compliance training accordingly, so it resonates with your partner’s real-world environment. If you’re unsure, ask them for guidance.
Internal ownership
Nearly one in four executives (24%) cited a lack of clear ownership as a top-three challenge for building trust in PwC’s latest survey.
Social compliance is everyone’s responsibility. That said, the specific responsibilities aren’t uniform in a global supply chain. Factory workers, plant managers and CEOs are accountable in different ways.
Clarifying the responsibilities and assigning social compliance metrics helps to embed ethical behavior in your company’s DNA.
Compliance training is also essential. Educate employees about the importance of social compliance and the company’s commitment to ethical practices.
Track and reward compliance: Workforce analytics tools like Time Doctor help you understand how the people in your team spend their time. You can use this to acknowledge and reward those who demonstrate exemplary compliance with social standards, and identify others who need support.
Social audit costs
Cost can be a barrier to social compliance in two ways:
- Direct costs such as auditing and improving ethical standards.
- Indirect costs incurred by adapting supply chain processes.
We’re particularly aware of the impact that inflation has – and continues to have – on businesses of all sizes.
One of the most effective ways to manage social compliance costs is by committing to regular audits. Frequent reviews reduce the likelihood of expensive corrective actions later on.
A well-designed compliance risk management framework also helps to manage costs by prioritizing suppliers and operations that pose the highest risk to your company’s reputation.
Collaborate on social compliance: There’s an emerging trend to use audit sharing platforms, where multiple brands collaborate on third-party audits of the same suppliers, reducing redundancy and audit fees. Using technology to automate audit data collection can also minimize manual work, cutting down overall costs.
Keeping up with competitors
We can all but guarantee that your competitors are increasingly prioritizing social compliance. Staying ahead means taking a proactive, often collaborative approach:
- Track industry news and developments related to social compliance.
- Attend conferences, webinars, and workshops to learn about emerging trends and best practices in your industry.
- Network with peers to share experiences and best practices.
Social compliance is one area where collaborating with your competitors is better for everyone.
Hold your company accountable: Set ambitious CSR targets and treat them similarly to financial or productivity targets. For example, tie management incentives to CSR metrics to show that you’re serious about social compliance.
Trust in technology
While technology can be a huge help in achieving and proving social compliance, choosing the wrong tech can either complicate your efforts or expose your company to other compliance risks.
It’s important to invest in technology carefully. Start with compliance management software that centralizes social compliance data and automates admin, and employee-friendly workforce analytics tools to gain clarity across your entire workforce without intruding on privacy.
Choose trusted providers: Only work with technology providers that adhere to social and regulatory compliance standards, and audit them regularly. Doing your due diligence ensures you don’t accidentally expose your organization to new risks while attempting to automate compliance tasks.
Time Doctor can help you commit to social compliance
Social compliance audits are vital for maintaining ethical business practices, building trust, and ensuring accountability across global supply chains. By regularly conducting audits, you can minimize non-compliance risks and prove your commitment to corporate social responsibility in one fell swoop.
That is a surefire way to foster lasting trust with both internal and external stakeholders.
Time Doctor can play a valuable role in supporting social compliance efforts by providing visibility into employee activities and helping to identify potential compliance issues. Time Doctor works alongside your compliance software, providing time tracking, employee well-being overviews, unusual activity reporting and optional screenshot features to monitor employee behavior and ensure adherence to company policies.
By combining social compliance audits with tools like Time Doctor, you get a comprehensive solution that streamlines social compliance costs, demonstrates proactivity, and gives stakeholders a reliable source of data.
View a demo to get familiar with Time Doctor’s employee-friendly workforce analytics features.
Liam Martin is a serial entrepreneur, co-founder of Time Doctor, Staff.com, and the Running Remote Conference, and author of the Wall Street Journal bestseller, “Running Remote.” He advocates for remote work and helps businesses optimize their remote teams.
