Module 4: Third Party Certification and Quality Standards

Product certification is an important component of innovation. To ensure that new products and services are both safe and ethical developments, there has been an increase in the use of certification protocols in the past fifteen years. In particular, third-party certifiers have become widespread. As a third-party, companies grant consumer confidence in their purchases, and enforce high standard of practice among companies. Effectively, third-party certification acts as a “filter” for innovation, providing guidelines that innovators and manufacturers alike must follow before a product enters the market.(1)

A Brief History

In the past, certification requirements were not mandatory in many product markets. While any steps to ensure product safety and quality came from government organizations, formal consumer protection laws were not passed in the United States until 1813, and it was only after the Pure Food and Drug Act of 1906 that any comprehensive legislature was seriously enforced.(2)(3)(4)

In the private sector, one of the earliest forms of third-party certification was the use of a kosher label, first applied by a non-profit organization called the Orthodox Union in 1923.(5) Since the 1990s, the protocol for certification began to adapt to a changing environment. For instance, globalization has cultivated the demand for a more standardized certification body.(6) The increased variety of products sold and concern for product development has also contributed to the need for oversight. For instance, food products can be “organic,”“free-range,”“cage-free,”“hormone-free,” or other varied specifications, including production by non-exploitation of humans or natural resources. The growing trend for such certifications has been led by an increased awareness of the harmful effects of production practices to human health and the environment.(7) There is also greater knowledge and public resistance to injustices like poor working conditions, minimal pay, and child labor. Although governments still play an important role in ensuring product safety and fairness, third-party certifiers are necessary to help manage the broad range of industries and newly developed certifications. Third-party certifiers supply credibility, information, and quality-assurance to customers.

Trust and Third-Party Certifiers

The need to compete, or fight to sustain a business, has led to a decline in trust between consumers and industry. As such, market competition has also contributed to the rise of third-party certifiers. With new innovations constantly entering the market, controls must be in place to prevent companies from taking undesirable short-cuts to product development. With an increase in such constraints, agency organizations must be available to monitor compliance.
To ensure consumer trust in the certification agencies themselves, there is a series of checks and audits in place. Third-party certifiers have overarching organizations monitoring the enforcement of proper quality standards. Figure 1 shows the structure of certification practices. There are generally three levels of certification. The lowest level is the certification body (CB), or the organization conducting audits on product manufacturers and suppliers. If CBs face financial barriers or do not agree with standards, they may opt out of accreditation. Most, however, are accredited to become audit companies by an accreditation body (AB). An accreditation body sets standards and guidelines for auditing companies. There may also be overlap between accreditation bodies and the certification bodies they approve. For example, National Sanitation Foundation International, one of the largest CBs in the world, is accredited by the Standards Council of Canada, the United Kingdom Accreditation Service, and the American National Standards Institute-American Society for Quality National Accreditation Board. The third level of checks is through accreditor associations. These are groups that ABs join voluntarily with a desire for consistent, mutually agreed-upon standards to promote. Accreditation bodies are audited by an accreditor association in order to join and continue their membership. Not all third-party certifiers participate in an accreditor association, and some unaccredited CBs may be recognized by an accreditor association. This three-tiered auditing system provides the typical structure of checks and balances for third-party certification organizations.
a(8)

Despite such safeguards, certification bodies still face limitations in their auditing process. Auditors use checklists and review company documentation to complete their audits. With market demands, CBs typically only see a “snapshot” of the production site. They place the “ultimate responsibility to mitigate unforeseen hazards or defects…on the producers and processors.”(9) The following case studies provide examples of certification agencies that have emerged in the course of increasing concern for product regulation at the market-level.

Case Study: GoodWeave

An exemplary certification agency that has been successful on the international level is provided by GoodWeave. Founder Nina Smith describes the organization as “working against [the] focused issue [of child labor] in a focused market [of carpets and textiles].”(10) The standards are clear: employment only after 14 years of age, allowance of random inspections, fair employee wages, and payment of a licensing fee.(11) GoodWeave International may accredit certifiers, acting as an accreditation body in addition to their role as a certification body. As a member of the International Social and Environmental Accreditation and Labeling Alliance (ISEAL), GoodWeave is monitored by a larger accreditation association. GoodWeave provides certification and auditing services, in addition to the implementation of a community model to promote education for children, literacy programs, and health care.(12)

Case Study: Fair Trade

The “Fair Trade” certification model has become widely recognizable in various market industries today. Fair Trade is “a system of exchange that honors producers, communities, consumers, and the environment.”(13) It “pays producers an above-market ‘fair trade’ price provided that they meet specific labor, environmental, and production standards…[as a] way to empower growers and drive sustainable development.”(14) To qualify as “Fair Trade,” products must meet requirements of the US certifying body, Fair Trade USA (previously Transfair). Despite the achievements of the fair trade movement in helping to improve the lives of many small growers, concerns have arisen that quality is imbalanced and that price premiums are neglecting farmers, with the critique that Fair Trade has simply evolved into a “marketing model for ethical consumerism.”(15)

Fundamentally, Fair Trade USA tries to promote economic development for small growers by using price floors, or limits to minimum pricing for a product. While commodity coffee is categorized into grades of uniform standard, Fair Trade coffee is “considered part of the specialty coffee market because of its special production requirements and pricing structure” – regardless of its quality. If given a choice between selling coffee at its quality price or a higher Fair Trade price, growers in Fair Trade cooperatives will opt to sell low standard coffee at the higher Fair Trade price and another high-quality bean at its quality price. There is a subsequent chance that Fair Trade coffee will continue to be of lower quality. The other concern is that “the Fair Trade price became the ceiling, not the floor,” as buyers were not incentivized to pay more than Fair Trade price for Fair Trade value.(16)

The system of cooperatives also retains premium earnings for collective use, rather than distributing premiums to individual farmers.  Despite the intention to alleviate poverty, the Fair Trade model of exchange is further limited to farm-owners, thereby excluding the migrant laborers that constitute the poorest segment of the population. Migrant laborers may also be hired as temporary workers, not subject to the required labor rights necessary for certification. A study of five Fair Trade certified farms in Peru found that workers were paid less than minimum wage in four of the five farms.(17) Shortcomings of the Fair Trade model reveal the challenges of creating effective and trustworthy third-party certifiers – even for agencies that have proven sustainable in the past.

Case Study: B Lab

A unique form of certification has been created by the non-profit organization B Lab. B Lab certifies companies displaying a “triple bottom line,” benefitting shareholders, society, and the environment.(18) Companies wishing to become a “B Corporation” undergo an extensive audit that evaluates how well the company helps to create quality jobs, preserve the environment, strengthen the community, and serve women, minorities, and low-income areas.(19) Currently, only 18% of companies that have applied have received certification.(20)

Co-founder Bart Houlahan expresses the idea to “create a new, legally-recognized, corporate form in all 50 states.”(21) Having created a format called the “B Corporation (Benefit Corporation),” B Lab recognizes businesses that are socially beneficial as well as financially profitable.(22) Thus far, legislation has passed in four states: Maryland, Vermont, Virginia, and New Jersey, with the motion to approve “B Corporation” entities in seven more.(23) There is hope that “B Corporations” may one day be subject to the same tax benefits as non-profit organizations. While “B Corporations” currently only receive tax breaks in the city of Philadelphia, some other benefits, such as the application of discounted prices, are feasible. With the potential for greater benefits under the new status, this certification is gaining recognition. The idea is not without its critics, who note a disadvantage at the profit margin. Nevertheless, B Lab hopes to change perceptions of business and innovation, and promote social development and environmental sustainability as goals that can coexist with the “bottom line.”

Challenges to Certification

A problem that has arisen in the process of certification has surrounded the use of product labels. With relaxed or nonexistent standards, most labels have contributed to consumer confusion or misrepresentation. Companies may label products with catch phrases such as “all-natural” or “gourmet,” which have no standards defining their use and could be placed on any product.(24) Even other, seemingly-defined terms like “cage-free” or “free-range” have lenient standards regarding their use.(25)

With this loose definition, certification boards face greater challenges in earning the respect and distinction they need as trustworthy agencies in the marketplace. Expanding to the practice of branding companies and products, the use of advertising to “promise more benefit than they deliver” began as a phenomenon in the mid-1980s and has continued to escalate in recent years.

For example, in the environmental industry, this practice has been known as “greenwashing.” Various energy companies have changed product colors, images, and taglines to emphasize investments in sustainability, even if such claims do not paint the whole picture. One example is provided by BP, previously known as British Petroleum but transformed into “Beyond Petroleum” during a course of rebranding in 2004. Marketing its provision of wind, biofuels, and solar forms, BP has hoped to highlight investments in alternative energy. Yet, alternative energy comprises only 7% of BP’s annual investment, and they lump natural gas-fired power stations that release fossil fuels with the definition of “alternative.” Further moves to reinvest in a high-carbon footprint activity in the Canadian tar sands and pulling out from wind power in Britain has raised consumer suspicion regarding BP’s claims to environmental stewardship.(26) So far, company liberties in the use of product marketing and labeling have presented challenges to certification, requiring the use of third-party certifiers more than ever.

Conclusion

The system of third-party certification is in place to nurture quality innovation and consumer confidence in the marketplace. Although there are still limitations to effective regulation, agencies have devised creative solutions to maintain trust and cooperation among auditors, companies, and consumers. From the hierarchy of the certification system to the development of the “B Corporation,” innovations in the third-party certifiers themselves are attempting to foster high-impact innovation in products and services that will benefit the world at-large.

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Footnotes

(1) Stoiber, Marc. "Is Eco-certification a Carrot- or Killer- for Innovation?" 9 Apr. 2010. Accessed on 24 May 2011. <http://www.fastcompany.com/1612295/is-eco-certification-a-carrot-or-killer-for-innovation>

(2) Hatanaka, M., C. Bain, and L. Busch. "Third-party Certification in the Global Agrifood System." Food Policy 30 (2005): 354-69.

(3) Swann, John P. "FDA's Origin." U S Food and Drug Administration. 18 June 2009. Accessed on 20 May 2011. <http://www.fda.gov/AboutFDA/WhatWeDo/History/Origin/ucm124403.htm>

(4) "FDA History - Part I." Accessed on 20 May 2011. <http://www.fda.gov/AboutFDA/WhatWeDo/History/Origin/ucm054819.htm>

(5) "Heinz To Be Honored For Being First Company To Display Kosher Symbol." 25 May 1999. Accessed on 20 May 2011. <http://www.ou.org/oupr/1999/heinz99.htm>

(6) Hatanaka, Maki, and Lawrence Busch. "Third-Party Certification in the Global Agrifood System: An Objective or Socially Mediated Governance Mechanism?" Sociologia Ruralis 48.1 (2008): 73-91. Accessed on 18 May 2011. <http://onlinelibrary.wiley.com/doi/10.1111/j.1467-9523.2008.00453.x/full>

(7) Ibid.

(8) Ibid.

(9) Ibid.

(10) Fridman, Leora. "Opposing Child Labor with Consumer Demand: Nina Smith of GoodWeave." 14 Apr. 2011. Accessed on 20 May 2011. <http://dowser.org/opposing-child-labor-with-consumer-demand-nina-smith-of-goodweave/#more-12353>

(11) Child Labor Free Certification." Accessed on 16 May 2011. <http://goodweave.org/about/child_labor_free_rugs>

(12) "Schools And Opportunities." Accessed on 23 May 2011. <http://goodweave.org/about/schools_education_opportunities>

(13)“Fair Trade.” Green America Come Together. Accessed on 22 August 2011. <http://www.greenamerica.org/programs/fairtrade/whattoknow/index.cfm>.

(14) Haight, Colleen. "The Problem with Fair Trade Coffee." Stanford Social Innovation Review. Summer 2011. Accessed on 24 May 2011. <http://www.ssireview.org/articles/entry/the_problem_with_fair_trade_coffee/>

(15) Ibid.

(16) Ibid.

(17) Weitzman, Hal. "The Bitter Cost of 'Fair Trade' Coffee." Financial Times [London] 9 Sept. 2006. Accessed on 31 May 2011. <http://tomweston.net/bittercost.pdf>

(18) Rosenberg, Tina. "A Scorecard for Companies With a Conscience." 11 Apr. 2011. Accessed on 20 May 2011. <http://opinionator.blogs.nytimes.com/2011/04/11/a-scorecard-for-companies-with-a-conscience/?ref=opinion>

(19) "B Corporation 2011 Annual Report." Accessed on 23 May 2011. <http://www.bcorporation.net/resources/bcorp/documents/B%20Corp_2011-Annual-Report.pdf>

(20) Adams, Susan. "Capitalist Monkey Wrench." Forbes Magazine 12 Apr. 2010. Accessed on 23 May 2011. <http://www.forbes.com/forbes/2010/0412/rebuilding-b-lab-corporate-citizenship-green-incorporation-mixed-motives.html>

(21) Adams, Susan. "Corporate Responsibility Nonprofit, B Lab, Shows Strong Growth." 16 Mar. 2011. Accessed on 23 May 2011. <http://blogs.forbes.com/susanadams/2011/03/16/corporate-responsibility-nonprofit-b-lab-shows-strong-growth/>

(22) Beck, Ernest. "Benefit Corporations." 27 Apr. 2011. Accessed on 23 May 2011. <http://changeobserver.designobserver.com/feature/benefit-corporations/26598/>

(23) "B Corporation - Public Policy." Accessed on 23 May 2011. <http://www.bcorporation.net/publicpolicy>

(24) O'Brien, Robyn. "What Does 'Organic' Actually Mean?" 15 Apr. 2010. Accessed on 17 May 2011. <http://www.huffingtonpost.com/robyn-o/organic-food-what-does-or_b_538535.html>

(25) Dunleavey, M. P. "What Does ‘Organic’ Really Mean?" 29 July 2006. Accessed on 17 May 2011. <http://www.nytimes.com/2006/07/29/business/29instincts.html>

(26) Pearce, Fred. "Greenwash: BP and the Myth of a World ‘Beyond Petroleum’" The Guardian. 20 Nov. 2008. Accessed 23 May 2011. <http://www.guardian.co.uk/environment/2008/nov/20/fossilfuels-energy>