Cindy Moehring is joined by Jon White, Managing Director at Omega Compliance, a Hong Kong-based organization that provides monitoring and guidance for ethical supply chain systems. Jon’s professional background in Hong Kong law enforcement gives him a unique, practical perspective on his current work, where he manages supply chain integrity in the private sector. Their discussion touches on forced labor, on-site supply chain audit practices, the commercial incentives that drive ESG, and the difference between aspirational and implemented codes of conduct.
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Episode Transcript
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0:00:15.8 Cindy Moehring: Hi everybody and welcome back to another episode of The BIS, The Business Integrity School. And today, we are very lucky to have with us a guest who got up quite early in the morning for him, Jon White, joining us from Hong Kong. Hi Jon, how are you?
0:00:30.2 Jon White: I'm very good, thank you Cindy. Hello everybody.
0:00:33.2 Cindy Moehring: Great. Well, let me first tell you all a little bit about Jon, and then we'll dive right into our topic for this season, which is all about ESG. So, Jon has held senior leadership positions overseeing global supply chain compliance operations for more than 20 years now, he's had extensive experience developing supply chain compliance and Anti-Corruption Programs for many of the largest consumer brands and retailers in the world. Jon has been the managing partner of Omega Compliance since its inception in 2005, and he continues to lead the company as its services grow even more. Jon's lived in Asia for over 30 years now, and he is fluent in Cantonese. He comes from a law enforcement background, having been a senior inspector with the Royal Hong Kong Police before entering the private sector. So Jon, wow, that is a very interesting background, and I'm wondering if you might just wanna spend a minute sharing with the audience how you got from law enforcement with the Hong Kong Police into compliance.
0:01:40.0 Jon White: Yeah, it's a great question. Firstly, I came to Hong Kong in 1986, as you say... At that time, Hong Kong was still a British territory, so it was a great opportunity for me to see a bit of the world. I came out here on a three-year contract, thinking I'll do three years and then go back to London, which is where I'm originally from. I think I've been here about a week and I already knew I'd never leave. And so, 36 years later, I'm still here and I absolutely love this place and everything about it, but working in law enforcement was fantastic, I enjoyed every minute, but an opportunity came around for me to join a company in the private sector, and it was just too good a chance to miss. I knew I wanted to stay in Hong Kong, so really made that jump.
0:02:35.3 Jon White: And then I joined a company called William E. Connor and Associates in 1998, that's a very big sourcing company, representing many of the biggest brands in the world, and that was really the stepping stone. And since then, I focused on supply chain and supply chain compliance all that time. I'm still learning, to be honest. Maybe doing it for 20 years, but every single day, there's a new challenge and it's still very interesting, and in terms of where our business is going, it's really likely a exciting times for us.
0:03:09.7 Cindy Moehring: Very exciting times. And boy, if you've been in Hong Kong for so long, you have seen a fair amount of change even in the territory itself, not to mention the supply chain compliance kind of area, I'm sure you wake up every day to something new, that must have something to do with keeping you young.
0:03:28.0 Jon White: Well, thank you for saying that. I'm not sure about that last part, but yeah, Hong Kong is such a vibrant and exciting place and it's a real nice place to have a family and all those other things that are so important in life. So yeah, we're really happy to be here. It's great.
0:03:48.1 Cindy Moehring: That's just so interesting. So ESG, which is the topic of this season of a video podcast series, all things environmental, social and governance compliance, and compliance-related in there of course, is a topic that has just exploded, I think in the last several years, but by large, it used to be, call it maybe something by another name, maybe it was a little different, CSR, it was just the social compliance, but it seems as though it has sort of taken center stage. And I guess my question to you from afar is whether or not you think this movement toward stakeholder capitalism ESG taking center stage. Do you think that's here to stay? Do you feel it in Hong Kong as much as maybe we do here in the States?
0:04:47.8 Jon White: Well, a very direct answer to your question is yes, I do think it's here to stay, and I think it's here to stay because to be frank, companies really don't have a choice. They really need to listen to their investors and listen to their customers, and they are demanding that companies handle their and manage their supply chains in a very different way than they did 20 years ago, or even five years ago, is my experience. And I've come at it at a very practical level. There are people who will say that it's the right thing to do, which it is, in terms of taking care of the environment, making sure workers are being treated properly and humanely, it is the right thing to do. And to that end, you can appeal to the manufacturer's conscience and you can say, "This is the right thing to do. You're not handling this properly." And that's one way of working.
0:05:57.3 Jon White: But to be very frank, I don't think that's the most effective. The most effective way is always driven commercially. And so, if an entity in the supply chain is motivated to make improvements and changes which help their workers, which improve their environmental footprint, etcetera, and there are commercial reasons for that. It's always the better way in my experience. I'm not saying that there aren't people who will listen to their conscience and want to do the right thing, but there is a commercial reason for doing so. It just makes things a lot smoother, and I really think that's where things have moved on. I don't think 10 years ago, we would have had a discussion about investors.
0:06:48.5 Cindy Moehring: What do you think was the tipping point?
0:06:50.8 Jon White: You know, I don't think you can put your finger on one thing. I think it's been a gradual process over the years but there have been a few things that have happened. They all started out in terms of mainstream was going back more than 20 years, there was instances of child labor, there was a lot of attention on the working conditions in certain countries, and that really got everything started. But if you think about that, and even actually, if you take that forward to today and what you read about and what's on the news in terms of working conditions, there's still a big focus on certain categories. So this all started with sportswear manufacturing, a particular apparel, but other items too.
0:07:48.8 Cindy Moehring: Yes, it did.
0:07:51.1 Jon White: And there's a great deal of sophistication in supply chains working for some of the brands who are focused on sportswear apparel and accessories, and generally, fashion brands and apparel brands are slightly ahead of other companies who are selling other consumer goods. Now, we're starting to see a shift, but there's a period where there has to be a catch-up. So, what I mean by that is factories who have been making apparel or footwear have been exposed to their client's compliance requirements for many years. And so, the conditions have improved and they've got much better. There are still improvements to be made, but there's no doubt that things have got a lot better. But if you are a factory that's making furniture, for example, it's only much more recently that they have had that exposure. And that type of client is now looking at the conditions in their factory. And so, they have to catch up.
0:08:58.1 Jon White: And so, I think that it's quite... You can't really look at the whole spectrum of sourcing and look at it in the same way. There are certain categories which are ahead and there are others which need to catch up, and I think that's what we're seeing now in terms of the progression. We're starting to see that catch-up, which is great, but there's a long way to go. And the other thing that's changing of course is the geography and where companies are sourcing from.
0:09:29.0 Cindy Moehring: What do you think is driving that change in location for where a company source from?
0:09:38.5 Jon White: Well, there are two main drivers. The first one is price. The first one is always, always price, and companies are looking to make quality goods at the cheapest possible price, so they can get the best margins when they obviously sell it eventually. But the other thing which is now starting to have a big influence on that is risk factors. The best example right now is COVID-19 and how that has impacted supply chains. At one point, it looked like that was gonna be focused on certain geographies. Obviously, now we're no different, and everyone's been impacted, but that's the type of risk that companies need to look at.
0:10:23.8 Jon White: There's other instances where there's been quite a lot of... In particular, in Asia or in Southeast Asia, there's been quite a lot of political turbulence, and when that happens, you run the risk of either A, your supply chain is not functioning properly because of what's happening in the country, or B, being subject to intense scrutiny and criticism because you're sourcing from a country where the overall conditions are not very palatable for anybody, and so you have to take those risks on board as well.
0:11:03.6 Cindy Moehring: Yeah, especially in this world that we live in today, which is so different than where we were just a year ago or year and a half ago now, pre-COVID. So, I love the perspective that you and in the work that you do, that you can bring to this conversation. Because what we're really doing in this season for the podcast video series is getting perspectives from those who are at different places in the links of the chain of ESG. And you and your company, Omega, play a very important role in the social auditing aspect for companies to be able to even know from a monitoring perspective, what kind of risks they have on the social side. So, let me ask you then for your own opinion from having dealt with many, many manufacturers and other retailers, what do you think are some of the biggest risks in the supply chain?
0:12:12.5 Jon White: The biggest risk that I see, and this might sound real simple but we still see it, is companies simply not knowing where their products are being made. So, the first step is to map the supply chain. It sounds simple, but very often isn't, because it may be that one item is being made in several locations, and so I think the big risk for companies is to not know where their products are being made. You have to map the supply chain. Only then can you go and actually look at the conditions on sight.
0:12:50.9 Cindy Moehring: Right. So, have you seen over the course of your work that the expectation for how many steps back to go in the supply chain, if you will, is that one of the changes you've seen more recently with this sort of ESG moment? Like listening to you, and I think the audience can grasp that there are steps in a supply chain, multiple, multiple steps when you think about building the product, but that product is made up of components and the components come from raw materials, so how far back do your audits go?
0:13:28.9 Jon White: Well, it's a really good question. It's very topical and it's coming to the fore right now for a couple of reasons. If I can really talk to it on a very practical level, so just to give you an example.
0:13:44.8 Cindy Moehring: That'd be great.
0:13:45.7 Jon White: So if you think about an umbrella. So let's say we have a company that is selling an umbrella. So they source that umbrella from a factory in a certain country. Now, that umbrella has a fabric covering, it has metal spokes, it has a plastic handle, it's wrapped in cellophane, it's then put in a box. So you already have four or five different steps in its production, and it's very possible that each of those production steps is being done separately at different factory locations. So now, if you are a brand and you are bringing in that umbrella, you're making that umbrella to sell, you have to determine, "Okay, which is the primary manufacturing factory? Or actually, are they all part of that manufacturing? And do I need to audit potentially five different places?"
0:14:43.3 Jon White: Now, if you're gonna audit all five places, then that's fantastic. I would applaud any company that tries to do that, but now you're talking about an extraordinary increase in cost for that item. Somebody has to pay for those audits and ensuring follow-up. The other things you need to consider is what is the item? Is it, for example, is that umbrella a toy umbrella, which is gonna go to children, which now ramps up your risk even more. So, there are so many considerations to look at in terms of how the product is made? How many steps are there?
0:15:24.7 Jon White: And right now, the other thing which is really promoting scrutiny in this area is the legislature, which is the recent legislation linked to forced labor. And of course, that does not say, okay, it's not focused on forced labor in a primary factory. It's looking at the potential for forced labor anywhere and it puts the onus on the importer to ensure that there's no forced labor across the whole supply chain. So, everybody is looking at that right now. We are in discussions with all of our clients who all want to ensure they don't have forced labor in their supply chains. We already look for that and try to identify that. It's just that the scope is broadening very quickly, and I don't see that changing.
0:16:17.9 Cindy Moehring: In your audits, just think about explaining to our audience how those are actually done. Is it all manual? Do you use technology at all?
0:16:30.2 Jon White: Yeah, it's primarily manual. There are two types of assessment. There are some companies who will provide what is often called a desk audit or an online assessment, and essentially that means looking at the paperwork, looking at the system. That's really not our forte. Our forte is going and seeing where the product is being made. Because we want to see the conditions on site, which you probably see when you're looking at paperwork in an office. We wanna go to the factory and we wanna see the workers working. We wanna see the conditions within which they're working, and most importantly of all, we want to conduct interviews with those workers.
0:17:23.1 Jon White: And so, part of the assessment is that we, not the factory management, we select the workers that we wanna speak to, and then we speak to them privately without any representation from the factory. And obviously, our teams are very experienced and trained in terms of how to have those discussions. And we want the workers to open up and tell us what the conditions are on site. The other big component of an on-site assessment is looking at the payroll, looking at the working hours, looking at those issues to make sure that the workers are being treated fairly and properly in line with local laws.
0:18:11.2 Cindy Moehring: Right, right.
0:18:13.0 Jon White: And the first thing we wanna benchmark is always the local law. So, it's a very intense exercise. There are some things which are really critical in making sure that the audit is done effectively. One of those is that we don't announce our audit date, so the factory doesn't know when we're coming, so there's no way for them to prepare as they might want to do. And the other thing is in terms of getting... You ask about technology, we're exploring that right now in terms of those worker interviews and how actually we can continue to communicate with workers using certain apps. So, if a worker is reluctant to come into a room and talk to us because they are a little bit fearful as repercussions from what they might say, we're actually exploring now the possibility of having voice hotline or message hotline so the workers... I think it's really at the start of exploring how technology can support us, but whatever happens, whatever happens, I think that always, it's not gonna replace going on site and seeing the actual conditions for ourselves and I feel very strongly about that.
0:19:26.0 Cindy Moehring: Right, it just seems to me that as the expectations on companies continue to increase further up the supply chain, for example, all the way back to raw materials and in your example, umbrellas, maybe they are all considered main factories and there isn't a main factory that's going to drastically increase the amount of inspections that need to be done somewhere in there. I would seem to think that technology ought to be able to help in some regards and be people-led, obviously, with on-site inspections, but be able to be more efficient and effective with it. One of the questions I have for you is, how do you handle the language barrier? Because I would imagine that you have workers in some of those factories, from oftentimes, many different countries, different nationalities, and so you may have sent an auditor who only speaks Cantonese, for example. So how do you handle that? What do you do in that situation?
0:20:22.9 Jon White: Yeah, that's a challenge. Very often, we will try to get an indication of what nationality of worker is working in the factory before we go, but sometimes it's not even that. Within China, you have so many different dialects, and within other countries too, sometimes you have different dialects, so it might not even be a different nationality, they might be just someone from a different province or from a different area, who is comfortable speaking in one language and not another. So we'll try to research that in advance, but also we, again, through experience, we know the locations where there's a lot of migrant workers, so we sort of know what's coming. And if we need to, we will arrange a translator and we can do that in two ways.
0:21:15.6 Jon White: We can have a translator actually accompany us to the auditor, which is always our preference if we know that there's going to be that issue before we go to the factory. But in some occasions where we don't know in advance and we come across a situation like that, then we actually have an established communication line with a service provider, who can actually do that via a telephone, so that we can understand what they're saying. Now, that's not ideal. It really doesn't promote a good flow in terms of discussions with workers, but at least then we are able to hear their opinions and their comments, but that's really rare. Most of the time, we will be able to arrange an interpreter to come with us in advance of going on-site.
0:22:08.1 Cindy Moehring: Got it. So you've been doing these social compliance audits for a while now. Many, many years, and you look at many issues that you've already mentioned, like the wage and hour, books and making sure the workers are getting paid right. I'm sure you've got your child safety, as well as child labor issues. So if you had to rank the risks in your mind, of what are the social compliance issues that raise the most concerns for you and your team, what would they be?
0:22:46.0 Jon White: It's a conversation that we have with our clients all the time, and one of the complaints which are... So I'm going around in a bit of a wide circle to answer your question, but I think it's important just to give you the background, but one of the complaints that factories have, and have had for many, many years is that, and I have some sympathy with them on this, in that, okay, today they are undergoing an audit by Omega, maybe tomorrow they undergo an audit by somebody else, for a different client. And the assessment is going to differ, based on the criteria that their client has directed the audit company to use. And it may be, that the emphasis is on payroll or it may be that the emphasis on working hours, and the way we report back is going to be in line with our client expectations.
0:23:41.9 Jon White: So as a result of that, you have a certain amount of audit fatigue amongst the manufacturers, who would much rather there'd be one way of doing the assessment and one way of reporting it, so that way they only have to undergo one audit. But the reality is that, that's not going to happen because if you think about the brands and the retailers who are directing these audits and ultimately paying for these audits, they all have different risk profiles. So if you are the biggest company in the world, making the most money, logically, you're going to be a bigger target than a much smaller company who no one's ever heard of, but it's perhaps sourcing from the same locations. And the way you want the audit to be conducted and reported is gonna be slightly different because it may be that you see payroll as the biggest item, whereas another company sees health and safety in the workplace as the biggest, most important item.
0:24:40.6 Jon White: So it really differs. In terms of my own opinion, it's really hard for me to rank them that way, but I think that there are certain risks that we always look for. One is obviously, child labor. If we see the potential for underage work, that's a big concern. Another one is forced labor. So if we see that, for example, passports are being held or we see there's no freedom of movement, then that's a big concern. And the other one is actually, overall safety of the building and making sure that it's structurally sound, which is a real tough one because we are not structural engineers. But if we walk around the building and we don't feel as safe ourselves to be in that building, then of course, we need to really address that issue. That really came to the fore. Quite a few years ago, there was a terrible incident in Bangladesh, where Rana Plaza and the building collapsed. So many people killed in that incident.
0:25:46.5 Cindy Moehring: I think it was over a thousand. Yeah.
0:25:48.0 Jon White: Yeah.
0:25:48.5 Cindy Moehring: That's a lot.
0:25:50.7 Jon White: It really highlighted the dangers that structural issues can compose. So yeah, I think those are the things that we really, really set off alarm bells for us when we find them.
0:26:04.5 Cindy Moehring: Yeah. So moving past social, given that this is ESG and that your roots are in social, I wonder, have companies started to approach you about doing any audits beyond that, while you are there? For example, in the environmental space.
0:26:27.6 Jon White: The environmental piece is really interesting and it's actually not a new conversation for us. We've been talking with companies, about looking at the environmental impact of their supply chain factories for many, many years, but there's always been a sort of... No one has known what to do, actually. More recently, there's been some success. So there is an initiative called the SAC. They have a certain...
0:27:01.2 Cindy Moehring: What does that stand for, the SAC?
0:27:04.1 Jon White: The Sustainable Apparel Coalition. So that's a group of companies and interested parties who came together many years ago, to formulate standards and minimum standards and to address environmental concerns. It's really progressed a lot. It's a real leader in the field. They have developed something called the Higg tool. Please don't ask me what Higg stands for. I can't remember. So the Higg tool is a way to assess the environmental impact of their supply chains and themselves, and that requires going on site and looking at factories. The big issue we have, to be honest is, again, it comes down to... It's a commercial issue, in that right now, when we go and evaluate a factory for social compliance, we have skilled auditors who can do that.
0:28:00.1 Jon White: If we want to go and assess the air emission, the noise emission, the water discharge at a factory, we would need to use engineers, qualified engineers to do that type of work, which is really expensive. It's really expensive.
0:28:15.8 Cindy Moehring: And it's a different skill set. It's a different skill set. Yeah.
0:28:21.7 Jon White: Yeah, it's not our existing teams. We would need to hire engineers who are qualified and capable of doing that type of work. And we're very able to do that. I've had many discussions and said, we're quite willing to invest in that and to put together the expertise and the teams we need, but it's expensive, and so far, companies don't have the appetite to take that on board at the moment. Now, the ones that we work for, those that do, are really very big and perhaps their exposure in terms of environmental issues is much greater than some of the others. Plus, and I think this is a really important point, it really depends on the challenges facing the particular company. If the company has a very stable supply base, so let's say, for example, they use 100 factories across their supply chain, and then every year, one or two of those factories change, but it's pretty stable and they have very long-term relationships with those manufacturers.
0:29:32.5 Jon White: In that instance, it makes sense to invest and to ensure that the manufacturers meet certain rules, in terms of environmental conditions. But if your supply chain uses 600 factories and many of our clients have that scenario, and 30% of those factories change every year, because this year it's a different fashion, they want a different shape, a different color, a different whatever, and so you've got that constant churn in terms of the factory they use. It's very difficult for them to invest that much money, knowing that probably next season, I need a different factory. And so we'll have to start all over again. So there are a lot of things to consider on the environment of this, but let me just... At the end of that, I would also say, it's on the agenda now, it never used to be, not really. And I do see that things are improving and I think much like social compliance, it will come to a point where companies really don't have a choice but to take this on board and make things better. So let's hope. I'm optimistic.
0:30:43.9 Cindy Moehring: I think the whole area is really exploding. You've got the expectation on companies now, to be able to report out on their ESG metrics, likely gonna be moving into a regulated space at some point in time, with some standards on how to do that. So it really shines, in my opinion, a very strong spotlight, if you will, on the work that companies like Omega does, because the companies are gonna have to be able to get, the corporations have to report, get that data.
0:31:13.9 Jon White: From a third party service provider perspective, what we hope is that, there are standards which we can apply, that are agreeable.
0:31:22.3 Cindy Moehring: Exactly.
0:31:24.2 Jon White: When we measure a factory for social compliance, we are essentially benchmarking the conditions in that factory against the local laws, primarily. There are certain other expectations which our clients have, which exceed the local laws, potentially, but those are fairly... They're not so expensive, but once you start talking about environmental performance or non-performance, is that gonna be us benchmarking against the local laws or is that gonna be against international standards? So that's gonna get more complex. So there needs to be a framework within which we can work.
0:32:05.5 Cindy Moehring: Well, Jon, this has been a fascinating conversation. Really, really helpful, I think, in just explaining that step in the process for companies being able to eventually report out on their ESG metrics. So thank you. And I always like to leave the audience with one or two resources that they can use, to dig a little further. And so, I like to ask all of my guests; what is a good show you've watched or something you've read recently, or maybe a podcast you listen to, that you think our audience might find useful, if they wanted to learn more about ESG?
0:32:43.9 Jon White: I thought about this quite a lot. Rather than me saying, "Okay, read this book or watch that program," I think that you learn the most, by looking at... This might sound simple, but looking at companies' published reports, which sounds pretty dry and boring, I know. But what I mean by that is, look at the published reports and actually look at the detail in terms of what they say. So, are the policies which they are promoting on their website or wherever else, are they aspirational or are they real? 'Cause there's a big difference between the two. So actually, if you look at all the big brands and all the big retailers, and if you go on their websites, you look at their codes of conduct and everything else, if you print them all out and put them next to each other, they look very similar, actually. There aren't that many differences between them. However, how they implement is totally different. And there are clues as to how a company works, based on how they word those policies. And I think that if you... Because I'm a real practical person. I think having the data is so important. It's all very well saying, "We do A, B and C, all our factories are perfect and all the workers are happy." Well, show me. Where is the data that supports that claim?
0:34:14.7 Cindy Moehring: That's right.
0:34:17.4 Jon White: And I think that if you look at some of the bigger companies, you'll find it quite interesting, if you do that. So, sorry, that's a bit of a cheating answer, but I think that's the best advice I can give, Cindy.
0:34:28.7 Cindy Moehring: I like that, and you know, that's a good place, I think, for the audience to go because transparency is becoming incredibly important these days. And so, go take a look at the companies and see if they really are being transparent in what they're sharing. So, that's great. Well Jon, this has been a wonderful conversation. Thank you so much for your time. I appreciate it and hopefully, we will be able to get together at some point soon, post-COVID, but this has been a wonderful conversation. Thank you.
0:34:58.5 Jon White: Well, thank you, Cindy. It's a great opportunity for me and thank you for everybody for listening to us today.
0:35:05.6 Cindy Moehring: Absolutely. Bye-bye.
0:35:08.2 Jon White: Bye.
