Improving Working Conditions in Global Supply Chains: The Role of Institutional Environments and Monitoring Program Design

Key Insights for Managers

Firms often rely on code-of-conduct auditing to assess the working conditions of their suppliers at the time of the audit. But it would be helpful to know which suppliers are more likely to improve or worsen their working conditions. Analyzing over 8,000 code-of-conduct audits, Jodi Short, Michael Toffel, and Andrea Hugill identify several factors that predict which suppliers improve their compliance with labor codes of conduct. First, their results suggest that auditors don’t merely document conditions on the ground, but also appear to transfer knowledge that can help suppliers improve. Suppliers exhibit greater improvement in working conditions—and especially regarding occupational health and safety—after more-highly-trained auditors conduct pre-announced audits, consistent with the notion that more learning occurs when better-trained teachers operate in more learning-conducive environments. They also find that suppliers are more likely to improve when they face greater risk of exposés by being located in countries with more NGOs and higher levels of press freedom. Greater risks were associated with suppliers improving more along all dimensions the study analyzed, including child labor, working hours, minimum wage, and occupational health and safety concerns. Larger improvements in working conditions were also found among suppliers who served buyers that have received negative press coverage for supply chain labor abuse. Such experience may make those buyers more attentive to the issue in order to avoid recurrences of bad press. The study was based on audits obtained from one large auditing firm that audited suppliers during 2004-2009 from across 13 industries and 66 countries; more than 70% were conducted in China. The most prevalent supplier industries were garments, accessories, electronics, and toys.