Companies that self-regulate to curb harmful practices increase profits, finds study

Companies in China that self-regulate to reduce harmful social practices—an increasingly prevalent strategy—are more likely to attract reputation-sensitive buyers and increase their exports to the Western world, new Cornell research finds.

Activism in recent decades has prompted numerous firms and sectors to adopt codes of conduct, certification systems, and other types of self-regulation to manage harmful environmental and social practices in their supply chains and to safeguard their reputations, said Duanyi Yang, assistant professor in the ILR School’s Department of Global Labor and Work.

“There has been significant skepticism within academia regarding the integrity of certification bodies and potential corruption in the certification process, especially in developing countries,” said Yang, co-author of “Self-Regulation for Reputation-Sensitive Buyers: SA8000 in China,” which was published Nov. 25 in Management Science.

“We found that private regulation did attract higher-wage firms, but it did not raise wages and cannot be seen as a substitute for collective bargaining and public regulations,” Yang continued.

SA8000 is an international certification standard that encourages organizations to develop, maintain and apply socially acceptable practices in the workplace. SA8000 adopters, which are considered a best-in-class standard for workplace conditions in China, exhibited higher pre-certification wages for workers compared to similar non-adopters in the country, surprising the researchers. The adoption of SA8000 certification also led to increased sales to foreign markets in which reputation-sensitive buyers resided.

To conduct their research, the authors obtained the records from Social Accountability International to collect the names and certification dates of every SA8000-certified enterprise in mainland China from 1998 to 2008. They matched 199 certified firms with companies listed in the annual survey of industrial enterprises conducted by China’s National Bureau of Statistics, and then measured workers’ wages and revenue earned from exports to foreign countries.

In addition to measuring revenue from exporting to the Western world, Yang and her co-authors—Greg Distelhorst from the University of Toronto and Judith Stroehle from the University of St. Gallen, in Switzerland—found that while employee wages were initially higher at these companies, the initial gains did not improve as time went on.

“Although firms usually work hard to pass the bar to get the certifications, once they obtained certifications, our research shows that they exported more to the Western world but did not do much more to continue increasing workers’ wages to make themselves a better or more socially responsible company,” Yang said.