5. Analysis
5.3 Strenghts and weaknesses of DONG‟s monitoring
5.3.3 Towards “regulated self-regulation”
On the one side, it can be argued that one weakness of DONG‟s monitoring methods is the risk of corporate manipulation as DONG: “tell the auditors what to look for because the auditors don‟t do anything themselves as such‟” (p.112). According to O‟Rourke, auditors are subjected to corporate manipulation when companies have the opportunity to influence them by deciding which sites to be audited and which results to be disclosed (2003:11). Based on this, DONG‟s audits are not very credible as DONG selects and hires the auditing company, points out specific scopes for inspection, and participates in the audits (Notat 10.08.10). In addition, what DONG calls „independent, third-party monitoring‟ should rather be called „external monitoring‟ as the theory states that independent, third-party monitoring is performed by parties who monitor performance without direct payment from those with a stake in the results, i.e. there is no connection between auditor and company (O‟Rourke 2003:11, Locke and Romis 2010:49, Locke et al. 2006:5, 2007:23). External audits, however, are performed by an auditor hired by the company, like DONG does (O‟Rourke 2003:10). Nevertheless, it is unlikely that DONG has struggled to build a monitoring system and then compromises its own efforts by manipulating auditors. Moreover, DONG‟s monitoring system has evolved from „privatised‟ internal monitoring (O‟Rourke 2003:7, 20), wherein DONG‟s own employees made monitoring visits (Notat 03.02.10), to „collaborative‟ external monitoring, wherein on-site audits are conducted by external auditors (O‟Rourke 2003:20). Furthermore, DONG‟s monitoring system is currently evolving towards „socialised‟ independent monitoring (O‟Rourke 2003:20) as Better Coal is supposed to involve different stakeholders to collaborate on creating a new common standard for audits in coal mines (Better Coal 2011). O‟Rourke calls this „regulated self-regulation‟ because it involves multiple stakeholders and depends on top-level commitment, internal and external monitoring, and participation of NGOs (2003:19). This development of DONG‟s monitoring shows that DONG is in fact striving to obtain an effective monitoring system to monitor compliance. Consequently, it can be argued that DONG‟s monitoring methods do not necessarily contain a weakness based on the risk of corporate manipulation even though there is a connection between DONG and the auditors. Linna Palmqvist confirms this, as she states that one way of conducting third-party audits is that company representatives participate in audits as observers (p.118). This will enable the company to carry out an ongoing dialogue with the suppliers on continuous improvements after the audit has been conducted (ibid).
5.3.4 Low credibility due to confidentiality
As the auditors who performed the extraordinary audits in Colombia and Russia gained access to sensible information of commercial character, DONG has made a non-disclosure agreement with the suppliers. Consequently, the audit reports cannot be disclosed: “We don‟t make the audit report public. That‟s because audits are done in great detail and that means that we consider it like a commercial relationship – and we know that if we begin to make audit reports public we will not be allowed to carry out audits no more” (p.115). Louise Münter confirms this explanation and add that DONG fears suppliers will the terminate business relationship if the information is disclosed (p.160). Jesper Nielsen, argues that the trade union movement in Colombia, and perhaps in Denmark, should have contributed in the audit for it to be credible (p.143). Even though Ruggie promotes publicly available reporting, he also states that all communication should “not pose risks to affected stakeholders, personnel or to legitimate requirements of commercial confidentiality” (2011:20). Consequently, this supports DONG‟s argument. Nevertheless, the information cannot be used by NGOs to hold DONG accountable16, like Locke et al. argues (2009:324) and consumers cannot use the information to send market signals through purchasing power like O‟Rourke argues (2003:5). This is a weakness of DONG‟s monitoring as this selective and incomplete information raises transparency issues and limits the effectiveness of the code based on Haufler‟s argument that for codes to have any effect at all, information about audits must be available to stakeholders on a regular basis (2001:44,48,78).
5.3.5 69,000 hectars and 10,000 employees: What to inspect?
Contrary to the problem with monitoring long supply chains (O‟Rourke 2003:21-22), DONG has an advantage since it is much more straightforward to monitor coal mines as locations are known. This advantage is however short-lived: “It‟s a huge machinery. And what are we actually looking for? You cannot inspect everything in an audit” (p.111), which indicates that the theoretical assumptions that auditors miss major violations (Vogel 2008:274, O‟Rourke 2001:1, 2003:21, 2006:6, Locke et al. 2009:332) and that it is difficult for auditors to know what exactly to monitor (Vogel 2005:76, Bondy et al. 2008:441) apply to DONG‟s reality as well.
DONG‟s audit in the Cerrejón-mine in March 2010 amounted to 30 working days (Appendix 2)
16 Information retrieved in audits must not be confused with the information that NGOs discover, like the information published in DanWatch‟s report ”The curse of coal” (2010).
which is much more time (29 days) than O‟Rourke claims that audits typically last (2003:15).
Nevertheless, it would likely take years to inspect the Cerrejón-mine as it covers 69,000 hectars with 10,000 workers (Sustainability Report 2009 N/A): “In the Cerrejón-mine in Colombia [...]
there are 10,000 workers and it stretches over an area of the size of Copenhagen. What should we look for? And that is inside the – fence then there is all the problems that occure outside the fence – which also relate to human rights and human rights violations” (p.112). SUEK has twelve mines in eight different regions in Russia and employs about 30,000 workers (SUEK Annual Report 2010). DONG sources coal from three of SUEK‟s mines in the Kuzbass region (Notat...15.06.11).
5.3.6 Unannounced audits not an option
Another weakness of DONG‟s monitoring, also in line with the theory (Locke et al. 2009:327-328, Vogel 2005:90), is that DONG‟s audits are announced beforehand: “We cannot get inside a mine. To get inside a mine you need safety instructions for several hours and that need to be scheduled. So it is not possible to carry out an unannounced audit” (p.113). Therefore, Heydenreich emphasises the importance of auditors‟ competences to uncover any prepared or falsified conditions (ibid). Linna Palmqvist participates in unannounced audits of factories wherein she has discovered minor differences between announced and unannounced audits, but she has not experienced or revealed major violations (p.124). This can, however, be due to other reasons than whether the audit is announced beforehand or not. Contrary, Jesper Nielsen argues that unannounced audits are usually not thorough enough, and based on many years of experience, he knows that to really get to know the real conditions it is necessary to have a trade union present with a shop steward protected by the law, otherwise people will not dare to tell the truth (p.132).
5.3.7 Labour persecution leads to biased information
As mentioned, one of the major issues in relation to Cerrejón is that subcontractors‟ workers receive up to 70 % less in wages than permanent workers. This was inspected in the audit in 2010 by interviewing selected workers: “It was noticed that the selected (indirect) workers employed by sub-suppliers had markedly different wage rates than the directly employed workers. There was however no sign of discriminating or illegal practice in this context”
(Appendix 2). This conclusion gives the impression that none of the workers interviewed
complained about their wage rates to the auditors. The issue about subcontractors‟ workers not being allowed to associate in unions was inspected as well. Here, the conclusion was: “Some of the workers employed by sub-suppliers informed that they wished to join a trade union but they did not know how to do it. Representatives from Sintracarbon stated that subcontractors do not allow their workers to unionise. It was however noticed that one of the sub-suppliers that was included in the audit has established a trade union and is in process of negotiating a collective agreement” (ibid). The subcontractor referred to is Chaneme, and the trade union is Sintrachaneme (p.155, Appendix 12). First, this citation confirms the theoretical assumption that the workers do not have enough knowledge about the code, which complies with the theoretical assumption (Haufler 2001:60, Bondy et al. 2008:445). Second, Louise Münter states that this conclusion confirms that contrary to the accusations it is possible for workers to unionise (p.156). However, out of Cerrejón‟s 300 subcontractors, which have approximately 4,000 workers in total (Notat 10.08.10), one has established a trade union – which succeeded due to secret meetings on a farm outside the city with private security guards to protect the union directors (Appendix 14). However, soon after, Chaneme unleashed a labour persecution against the unionists with sudden dismissals, violation of due process, and empeeding the free exercise of the right to association and collective bargaining (ibid). For instance, on June 26th, 2010, Chaneme staged a robbery of gloves inside Cerrejón‟s facilities with support from Cerrejón officials (ibid). Gloves, handed out to workers, were reported stolen the next day and found on the workers when they returned from the night shift. 18 workers were subjected to disciplinary hearings, including the secretary of the union, and five workers got their identity card retained for seven days (ibid). Three of the workers were fired (ibid). This is a direct violation of DONG‟s 5th code requirement, Harassment and disciplinary measures. In December 2010, DR P1 Dokumentar revealed evidence of Chaneme bribing its trade union‟s members with wage increases and loans for houses to make them disaffiliate from the union in order to shut it down (p.156) – which is a direct violation of the 9th code requirement, Corruption and bribery, which states that: “The supplier shall not engage in any form of corrupt practices, including extortion, fraud, or bribery whether direct or indirect” (Appendix 8). Workers of another subcontractor, Sotrans, tried to establish a trade union, Sintran, but were threatened, intimidated, and harassed, and in the middle of negotiations the president of the union together with 15 other members had their contracts terminated to finish off the union with the approval of Cerrejón (Appendix 14).
Thus, Cerrejón is violating the 3rd code requirement that states: “We expect that the supplier
does not prevent employees and other workers from associating freely with any lawful workers‟
association [...]” (Appendix 8). In addition, this is a violation of the 4th code requirement, Discrimination, due to discrimination of personal characteristics (trade union membership). In 2008, Adolfo Gonzalez Montes, the regional leader of Cerrejón‟s own trade union, Sintracarbon, was tortured and killed in front of his four children (p.145). He was killed on March 22nd as number 20 in the killings of unionists in Colombia so far that year (38 trade unionists…26.08.08). After the murder, Sintracarbon requested Cerrejón to increase the safety of unionists, but until January 2010 that had not happened (p.145). In other words, contrary to Louise Münter‟s argument, it is not possible for subcontractors‟ workers to unionise. In addition, this indicates that the circumstances are likely influencing the workers‟ willingness and curage to speak freely in accordance with theoretical assumption (O‟Rourke 2003:23, 2000:4). Moreover, it shows that not only is Cerrejón using unethical and illegal methods to prevent unionisation, Cerrejón is also violating DONG‟s 3rd, 4th, 5th and 9th specific code requirement. Nevertheless, based on the audit in March 2010, the auditors concluded that Cerrejón complies with national and international regulations as well as DONG‟s code of conduct (Appendix 2).
5.3.8 Compliance despite violation of code requirements?
Another weakness of DONG‟s code is the challenge of ensuring compliance as Heydenreich states: “‟To ensure‟; we can only do that with audits. We can only do that by being out there”
(p.115). However, at the same time he states: “In a way we cannot be sure because as soon as we leave the site, as soon as the audit is completed, suppliers can bring in all the children they wish.
We cannot control that” (ibid) and: “from the moment you carry out an audit and you leave, things may change. An audit is a snapshot” (p.113). The latter two quotations confirm Vogel‟s theoretical assumption about audits being snapshots of current labour practices and conditions at that particular point in time when the audit is performed (2005:90). Peter Thagesen is aware of companies‟ lack of control in supply chains: “It can be difficult to ensure anything at all, truly”
(p.130) – a perception which probably is based on experience: “we also hear stories about people who actually make [audits] and are presented to other production facilities than those they actually source from” (p.137). Like Heydenreich, Linna Palmqvist also does not believe that companies ever can be completely sure that suppliers comply with their codes (p.130).
Louise Münter, on the contrary, argues that DONG can ensure compliance by performing on-site audits, keep in touch with the mines‟ management, and follow up on corrective actions (p.156).
Louise Münter states on January 28th, 2010, that Cerrejón is not complying with DONG‟s standards in light of the information presented by DanWatch and DR (p.152). However, in the note to the Minister of Finance on April 19th, 2011, she states that Cerrejón does comply with DONG‟s code of conduct based on the March 2010 audit (Appendix 2), i.e. a complete opposite conclusion than the one given to DR. As the situation did not change much during this time spand, based on the empirical findings (especially Appendix 14), this conclusion is likely based on DONG‟s perception of its responsibility in the supply chain which is limited to first-tier suppliers (p.113,161) – which applies to the theoretical assumption by Vogel (2009:274, 2005:76) and Pearson and Seyfang (2001:56). Nevertheless, the conclusion is not quite comprehendable due to the violations described above.
5.3.9 In sum
DONG‟s monitoring for compliance with the code has been built from nothing as DONG was the first European company to conduct coal mine audits; thus, DONG‟s monitoring appears to be targeted and built on experience. Another strength is that DONG‟s monitoring provides information about suppliers‟ performance in meeting the code requirements and that the two extraordinary audits conducted in Cerrejón and Kuzbass amounted to 30 working days, which is 29 days more than theoretical assumptions. Also, in pace with DONG‟s increasing experience with audits, DONG‟s monitoring is likewise continuously developing and improving. It can be argued that one weakness of DONG‟s monitoring is that it lacks credibility because DONG may influence and manipulate auditors as DONG selects and pay the auditing company directly, and participates in audits as observers. However, it is argued that it is unlikely that DONG compromises its own efforts and years of building the monitoring system, and that it is actually preferable that DONG participates in audits because this provides DONG with an opportunity to enter into dialogue and relationship with the suppliers to improve responsible behaviour.
DONG‟s explanatory notes to the Ministry of Finance state that Cerrejón complies with the code, but the empirical findings show that Cerrejón violates several of the code requirements. Another weakness is that the mine sites are huge with thousands of workers and therefore difficult for DONG to monitor. In addition, it is impossible to conduct unannounced audits. Another major weakness is DONG‟s non-disclosure agreement with suppliers that prevents stakeholders from gaining information about performance and social responsible behaviour, increases the transparency issue, and lowers DONG‟s credibility.