SAGESSE UNIVERSITY

Faculty of Business Administration and Finance

THE IMPLEMENTATION OF SMETA AUDIT PROTOCOL ON

MANUFACTURING COMPANIES OF LEBANON

MBA THESIS OF AUDITING

ZIAD EMILE FARAH

Bachelor in Business Administration (accounting emphasis)

UNIVERSITE LA SAGESSE

2020
 PROBLEM STATEMENT

Nowadays, the entire world is changing due to globalization. MNEs (Multinational

Enterprises) and the governments of advanced countries conditions and stipulates most
manufacturing organizations to adhere the global standards of sustainability, and to
respect all the rules of labor standards, health and safety, environment and business
integrity. The SMETA (SEDEX Members Ethical Trade Audit) is an international certificate
created by SEDEX (Supplier Ethical Data Exchange). Its mission consists of conducting an
ethical audit that serves the well-being of the requirements listed above. The audit firms
in Lebanon have the ability and the knowledge to offer this type of audit but the
Lebanese government doesn’t oblige the implementation of SMETA Audit Protocol on
the manufacturing companies. On the other hand the Lebanese government forces the
Lebanese companies to get financially audited.

Nowadays, SMETA is an important certificate for the companies working in the

manufacturing field to be able to sell their products to advanced countries which give
utmost importance to social responsibility. This thesis investigates the influence of
SMETA Audit Protocol on the Lebanese companies and if it’s important to apply the
SMETA audit in Lebanon, four qualitative interviews for four Lebanese companies and
for four audit firms, to ask them if the SMETA audit is being implemented in Lebanon,
what is the most important benefits and the drawbacks of the SMETA Audit Protocol.

Some requirements of MNEs and big firms contain the implementation of SMETA Audit
Protocol as a pre-requisite to make deals with Lebanese local companies which gives
this protocol more advantages. In addition, the SMETA Audit achieves the sustainability
by the preservation of the environment, and helps the workers to improve their living
conditions and gain their rights and encourages the small manufacturing companies to
upgrade their products and improve their competitiveness.

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 TABLE OF CONTENTS

CHAPTER TWO

 LITTERATURE REVIEW

2.1 CSR Implementation

2.1.1 CSR Implementation in Peruvian Companies

2.1.2 CSR Implementation in Polish Companies

2.1.3 CSR Implementation in African Companies

2.2 Sustainability Assessment

2.2.1 Sustainability Assessment: A Pathway for Reducing Audit Fatigue

2.2.2 Strategies to Improve Sustainability through Supplier Assessment

 COMPARATIVE TABLE

 REFERENCES

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 CHAPTER TWO

LITTERATUE REVIEW

2.1 CSR Implementation

2.1.1 CSR Implementation in Peruvian Companies

2.1.2 CSR Implementation in Polish Companies

2.1.3 CSR Implementation in African Companies

2.2 Sustainability Assessment

2.2.1 Sustainability Assessment: A Pathway for Reducing Audit Fatigue

2.2.2 Strategies to Improve Sustainability through Supplier Assessment

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  LITTERATURE REVIEW

2.1 CSR Implementation

2.1.1 CSR Implementation in Peruvian Companies

SEDEX is a non-profitable organization devoted to improve worldwide supply chain and

help associations to deal with it all around the globe. The SMETA review convention is
the CSR instrument made by SEDEX that helps organizations on distinguishing,
estimating and catching more data about what's going on in their supply chain. The
SMETA audit control fundamental concern is determining and regulating essential
exercises and strategies on work rights, wellbeing and security, natural and moral on
organizations utilizing this standard. SMETA not just requires consistence with the lawful
least rules since there are requirements for the organization to be considered socially
liable to their workers and the surrounding in which it works (Medina Rodriguez 2016).

Advantages, disadvantages, troubles of the execution as well as assessment of SMETA

audit protocol were investigated on five distinctive organizations situated in Lima, Peru.
The purpose of this thesis is to understand how SMETA works (Medina Rodriguez 2016).

After interviewing auditors and companies, we found that, according to them SMETA is
a finished standard with rules that once executed, can bring many advantages to them,
for example, consumer loyalty, entering new markets, constant improvement, sparing
costs, consciousness of their own blemishes and upgrade of reputation. Moreover, they
all agreed that SMETA is a very complete standard that incorporates issues of wellbeing
and security, work, human rights, condition and morals which are audited later on. They
considered that SMETA has expanded since and more Peruvian organizations are
actualizing the standard and requiring audits. As for the auditors, they have given their
suggestion in respect to a few enhancements or issues that ought to be considered
while executing the standard. In addition, they considered that one of the fundamental
issues is the absence of responsibility from the management that could affect negatively
the implementation of the standard (Medina Rodriguez 2016).

To conclude with, it is recommendable that the organizations make the important

adjustments during the underlying audits of the SMETA. Organizations need to actualize
CSR strategies and activities that permit them to get great outcomes in the following
SMETA follow-up audit. Moreover, it is important that this standard is not only
considered by the organizations itself but also by their suppliers. This would permit
them to acquire critical preferences, improve working conditions, improve service

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quality, upgrade their good reputation, improve their competitiveness and would have
greater possibilities of obtaining contracts with other international customers (Medina
Rodriguez 2016).

2.1.2 CSR Implementation in Polish Companies

The International Standards ISO 26000 is the best practice in Social Responsibility, but is
a non-certified standard. 80 countries endorse corporate social responsibility and its
various applications. The CSR standards, codes and requirements addressed by
companies consist from six main areas: human rights, labor practices, the environment,
fair operating practices, consumer issues and community involvement and
development. One specific area is the most reputable and is the main reason companies
enter CSR and it is “Environmental Protection” (Misztal and Jasiulewicz-Kaczmarek
2014).

In this thesis they opted ten Polish enterprises, in which social responsibility and
environmental awareness are applied from the stakeholders and thus to analyze and
limit the impact of business on the environment.

The Market in Poland is gaining a lot of interest in social responsibility. Big and
international customers are dealing with the companies that respect environmental
standards and have important certifications such as the ones offered by SMETA audit.
The European Union imposes to respect the requirements related to the environmental
protection and the sustainability.

This study was achieved from 2006 till 2013 on ten Polish manufacturing companies
(Misztal and Jasiulewicz-Kaczmarek 2014).

The research consisted in the facts as below:

 Access to documentation and records system.

 Participation and recording the process of external audits in the environmental
area.
 Assessment of the status quo based on observation and interview with the staff.
 Filling in a checklist with environmental requirements of standards ISO 14001
and CSR.
 The environmental requirements divided on three key groups of activity first is
environmental requirements on a strategic level, second is environmental
requirements towards environmental aspects, and finally environmental
requirements towards operational activities. And for each key groups of activity
has an evidence fulfillment.

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The Polish enterprises have shown attention in the three key groups of activity and
respect environmental standards (Misztal and Jasiulewicz-Kaczmarek 2014).

2.1.3 CSR Implementation in African Companies

In recent years the CSR policy is largely adopted in the western countries. Most of the
governments of developing and third world countries and specifically in the sub Saharan
Africa are not interest in CSR yet and did not adopt it. Lots of research has been done in
the role of governments in the field of Social Responsibility and how the governments
can adhere the companies to respect and apply the CSR (Visser et al. 2010). The
governments of advanced countries such as United State of America, Western Europe,
Australia, and some ex-colonial, smaller, and emerging countries are investing in the
Corporate Social Responsibility and they have a major role on sustainability
awareness(Jamali and Mirshak 2007).

This research points out the present situation of CSR performance in the Saharan Africa.
Most of the applicants showed that CSR is not a formal policy in these countries. These
countries struggled to make the CSR's application accepted in their constitutions. Many
African participants indicated the rights-based policy as a broad challenge of CSR. Some
participants in Africa like Nigeria and Ghana viewed CSR from a moral obligation
perspective, which is influenced by international advocacy of right-based framework for
development. Furthermore, CSR showed by this study is a company initiative in
compliance with international code of business conduct. Lack of national CSR policy
meant that organizations are a liberty to take individual initiatives, which often do not
reflect corporate social responsibility practice. This creates a number of challenges to
government companies and host communities where companies operate, with the
resulting difficulty in assessing ,monitoring CSR company initiatives from a motivational
perspective, the research shows the achievement of simple business operation based
objectives with an underlying profit increasing motive are fixed factors why companies
engage in CRS in Saharan Africa. CSR reporting in Saharan Africa is specialized by
voluntary reporting a country level with financial- based accomplishment, while at the
international level, companies have to report in order to secure international
accreditations among nations. The issue of bias and small number of countries involved
in the study may constitute some restrains, this study could have policy suggestions for
both executive and national parliaments in developing countries in initiating appropriate
legal framework and enabling legislations to support CSR practice(Samy, Ogiri, and
Bampton 2015).

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2.2 Sustainability Assessment
2.2.1 Sustainability Assessment: A Pathway for Reducing Audit Fatigue

All the Multi National Enterprises (MNEs) require from the suppliers to adhere the
global standards of sustainability and to respect all the rules of labor standards, health
and safety, environment and business integrity. Therefore to organize these
requirements and to reduce the audit fatigue 2 structures should be used to represent
by The Supplier Ethical Data Exchange (SEDEX), and Global Social Compliance Program
(GSCP) (McKinnon 2012).

SEDEX created SMETA (SEDEX Members Ethical Trade Audit) which is an audit
methodology providing a compilation of the best ethical audit techniques composed of
three elements:

 A common Best Practice Guidance on conducting ethical trade audits

 A common Audit Report format
 A common Corrective Action Plan format

GSCP is a non-profit business created by global buying companies to maintain a balance

between saving the environment and reducing the audit fatigue.

SEDEX and GSCP have the same goal of improving social and environment performance
in the supply chain. The difference between SEDEX and GSCP is that SEDEX is mainly
limited in the audit perimeter, while GSCP has a broader influence that concerns
suppliers and all other components of the supply chain.

In this thesis we have 3 important questions. First, how can i evaluate the sustainability
standards that address a better environmental performance? Second, if these two
systems SEDEX and GSCP can improve the sustainability in the social and environmental
performance, what are the benefits and the drawbacks? And finally if these two systems
can reduce audit fatigue and increase the transparency of audits for MNEs?

In response for the first question, companies are mainly interested in finding a working
plan that can enhance environmental performance and secure their future
sustainability, and that is variable between a business and another. Therefore, each
company should shape a plan that best fits its components.

The key benefits of these two systems: structured and managed the issue, sharing the
experiences for many industries eases the process and reduce the audit fatigue, and
these two systems give many services such as risk assessment, workshops, industry

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news and training. The noted drawbacks of the initiatives are that they do not provide a
certification or quality stamp of the audits that are conducted and used for sharing
objectives, contrariwise SEDEX has a certification named by SMETA audit (McKinnon
2012).

The two systems are designed to facilitate the audit process and will definitely lead to
better transparency as it covers more sectors of the business and matches with a more
sustainable and environmentally friendly approach (McKinnon 2012).

2.2.2 Strategies to Improve Sustainability through Supplier Assessment

Mckinsey led a study in 2010 showing 30 percent of executives are usually interested in
investing in sustainability (McKinsey 2010), and another study led by Dow Jones in 2013
shows the German manufacturing companies are more respectful of the sustainability
than the United State, Britain and Japan combined (RobecoSAM 2013). This research
combines these observations and it will be studying how German companies tried to
integrate the concept of sustainability along their supply chain, and to identify how
supplier assessment is becoming an important topic when analyzing sustainability
integration into worldwide businesses (Wateau and Campos 2015).

In this research they selected 5 German companies from different industries

represented as follow:

Company Name Industry

MAN Vehicles & Components
HeidelbergCement Construction
ThyssenKrupp Materials
Beiersdorf Household & Personal Products
RWE Utilities

Almost all German companies respect the sustainability and are interested in applying it,
in particular these five companies are the largest in Germany and it needs to gain the
confidence. The biggest companies in Germany have a process to make deals with
supplier and customer, part of this process related to the implementation of social
responsibility and the sustainability, wherefore the SMETA audit protocol assures if this
supplier and customer respected the rules and the standards of social responsibility and
the sustainability by independent external ethical audit, and this certificate (SMETA
Audit) globally recognized and the almost German companies admit it.

The present article aimed to understand how the German companies has been using the
supplier assessment to improve their sustainability, and this paper has shown these five

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selected companies recognized as implementation of sustainability, and the executives
have been invested in this issue and faced the challenges regarding data management,
transparency, standards and goals setting as well as collaboration with their supply
chain business partners (Wateau and Campos 2015).

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  COMPARATIVE TABLE

Authors Problem Theories / Methodology Findings

(Year) statement / concepts
Keywords
(Medina If the Peruvian The application Interview with five After realizing
Rodriguez companies of the SMETA Peruvian companies how beneficial
2016) execute the Audit protocol and auditors SMETA audit is,
SMETA audit on the (qualitative) Peruvian
management of companies
the CSR started adopting
Peruvian it.
companies
(Misztal and If the Polish Environmental Research on ten Polish All Polish
Jasiulewicz- companies issues of the companies companies
Kaczmarek implement the corporate social (qualitative) showed great
2014) CSR. Analyze responsibility interest in the
and limit the environmental
impact of benefits and
business on applied the
the implications in
environment three fields;
Strategic,
Environmental
and
Operational
level.
(Samy et al. If the Examining the Several countries in Majority of the
2015) companies in public policy sub-Saharan Africa sub Saharan
Sub Saharan perspective of African
Africa respect CSR companies do
the CSR implementation not respect the
in sub-Saharan CSR and those
Africa who do, rely on
their morals.
(McKinnon if these two Sustainability Interview with Improve
2012) systems SEDEX Assessment auditors and efficiency,
and GSCP can companies(qualitative) reduce costs
improve the and improve
sustainability in social and
the social and environmental
environmental performance
performance and reduce

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 and can reduce audit fatigue.
audit fatigue
(Wateau and Company Five German major Facilitated their
Campos 2015) executives companies were relationships
were asked studied with their
about their suppliers and
opinion in customers.
implementing
CSR and
sustainability

 REFERENCES

Jamali, Dima, and Ramez Mirshak. 2007. “Corporate Social Responsibility (CSR): Theory
and Practice in a Developing Country Context.” Journal of Business Ethics
72(3):243–62.

McKinnon, Jeffrey. 2012. “Sustainability Assessment: A Pathway to Reducing Audit

Fatigue?” IIIEE Master Thesis.

McKinsey, J. 2010. “How Companies Manage Sustainability.” Mckinsey Global Survey

Results, Accessed on March 31:2014.

Medina Rodriguez, Alicia. 2016. “The Application of the SMETA Audit Protocol on the
Management of the CSR of Peruvian Companies: A Case Study of Standardization
via SMETA in Manufacturing Companies.”

Misztal, Agnieszka, and Małgorzata Jasiulewicz-Kaczmarek. 2014. “Environmental Issues

of the Corporate Social Responsibility.” Management 18(1):58–70.

RobecoSAM, AG. 2013. “Dow Jones Sustainability World Index Guide.” Zurich, Suiza:
S&P DOW JONES INDICES.

Samy, Martin, Henry Itotenaan Ogiri, and Roberta Bampton. 2015. “Examining the Public
Policy Perspective of CSR Implementation in Sub-Saharan Africa.” Social
Responsibility Journal.

Visser, Wayne, Dirk Matten, Manfred Pohl, and Nick Tolhurst. 2010. The A to Z of
Corporate Social Responsibility. John Wiley & Sons.

Wateau, Eugénie, and Juliana Kucht Campos. 2015. “New Strategies to Improve
Sustainability through Supplier Assessment.” Pp. 95–120 in. Berlin: epubli GmbH.

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