Auditing vs Accountability: What Welspun – Target Incident Teaches Us

This week India’s largest home textiles exporter, Welspun, came into the limelight for losing its second biggest US retail customer Target, who accused them of passing off cheap sheets as premium grade Egyptian cotton for the last two years.

Following Target’s accusation, other Welspun customers such as Bed Bath and Beyond, Walmart, and JC Penney, started probing the manufacturer to ensure the integrity of Welspun’s product claims and cotton certification records were accurate. The news caused Welspun to lose $798 million.

Welspun India released a statement saying that one of the big four auditing firms will perform an external audit of its processes. However, the blow to Welspun’s reputation and the loss of trust by its customers and even its own employees, is irreparable. Stock markets in India saw half of Welspun’s market share disappear and it gives a distinct déjà vu of Volkswagen’s emissions scandal. In the absence of Target’s comments as to what triggered the probe, only time will tell if the full details of the scandal will ever come to light.

We can speculate about what happened:

1. Welspun could have known about it all along and didn’t do anything about it.
2. Top level management didn’t know which means the organization was mismanaged leading up to this huge error in their processes that went unnoticed for two years.
3. Relationships with their customers were fragile and/or failing and a big supplier such as Target needed to distance themselves quickly rather than try and repair the relationship.

So what can other businesses learn?

1. The importance of transparency in an organization: If your business processes lack transparency to such an extent that accountability gaps and expired certifications can go unnoticed, then it is time to perform an internal audit. Routine audits, both internal and external, should be part of normal business operations.
2. Accountability is attached to people: Regardless of team efforts, someone needs to be held accountable. Organizations are only as good as the people running them and it is important to have the kind of team that is accountable and acts with integrity and alerts the right people when they notice something wrong.
3. Managing customer relationships: With the speed of information today, never before can such an incident cause permanent damage to reputation so quickly. Maybe Welspun will come out of this but it will have some difficult decisions to make and considerable changes will have to be made internally to regain the market’s trust again.

It takes ages to build up a strong reputation and just a moment to tarnish it. In today’s digital age, it is vital businesses realize how quickly an incident like this will impact their employees, their customers, and their bottom line.

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