Walmart decided to hire an outside safety auditor to inspect factories in Bangladesh. New research by Prof. Terry Taylor finds “increasing auditing backfires by increasing hiding effort and reducing a supplier’s effort to comply with labor and environmental standards.”
Taylor, associate professor at UC Berkeley’s Haas School of Business, studies the economics of operations management and explains his findings in the working paper, “Supplier Evasion of a Buyer’s Audit: Implications for Auditing and Compliance with Labor and Environmental Standards.”
Auditing consists of document reviews, plant tours, and employee interviews but Taylor points out there is software that can produce two sets of reports; onsite inspections may not reveal true problem such as hidden pipes used for wastewater; and finally, employees can be coached and are often intimidated by factory owners for fear of losing their jobs.
The study suggests that non-government organizations (NGOs) and buyers should collaborate to make hiding more costly and thereby, convince suppliers to increase safety compliance. Taylor proposes solutions such as imposing supplier penalties and providing hotlines for employees to report hazards. Also, incentives for improving compliance may include providing training and assistance to suppliers so they may better organize production schedules and reduce their production costs.
The focus, says Taylor, should be on compliance, not passing the audit.
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