Public Disclosure, Reputation Sensitivity and Labor Law Compliance: Better Factories Cambodia

Key Insights for Managers

In Cambodia, factories exhibited greater improvement in working conditions when their audit results were publicly disclosed. This study examined factories participating in the International Labour Organization’s (ILO) Better Factories Cambodia initiative, a program that monitored the working conditions of enrolled factories to assess their compliance with the Better Factories program’s standards. This program initially required factories’ working conditions audit results to be publicly disclosed, but then discontinued the public disclosure requirement in 2006 (and reinstated it in 2013, after this study was conducted). Authors Debra Ang, Drusilla Brown, Rajeev Dehejia, and Raymond Robertson found that when audit results were no longer publicly disclosed, the pace of factories’ compliance improvement slowed down. More generally, this study found that factory compliance levels improved as Better Factories Cambodia continued auditing factories over time. Compliance levels tended to be lower for physically irreversible compliance categories. These results suggest that, to procure from suppliers with better quality working conditions, firms should seek out those already participating in labor standards initiatives, especially those initiatives that disclosure audit results.