Examining the Impact of Leniency Bias on Supplier Audits

Auditing is a critical governance instrument for buyers to monitor, enforce, and improve suppliers' Corporate Social Responsibility (CSR) practices. However, auditing is not an exact science. Audits are subject to potential biases which can impact their accuracy. Given this, recent studies in the auditing literature emphasize the need to identify and explore the biases that can occur during audits. In this paper, we examine the impact of one type of bias, monitor leniency, on supplier facilities’ CSR audit performance. Specifically, we examine how monitor leniency and facility CSR ability impact facility CSR improvement. Using a unique dataset which consists of historical, facility-level audits for a large, global apparel brand, we find that both monitor leniency and facility CSR ability help to reduce the total severity score for audit outcomes in the next round of audits. To further understand how monitor leniency potentially influences facility CSR improvement, we study the interaction effects between leniency and (a) facility CSR ability, (b) whether the monitor changed from the last round of audits, (c) the number of times a facility has been audited, (d) the change in leniency a facility has incurred, and (e) whether the facility is located in a developing or developed country. Interestingly, we find that while the reduction in severity score effect of leniency is strengthened the greater the change in leniency a facility incurs, it is weakened as the facility’s ability increases, the number of audits increases, or when the facility is located in a developed country. Our findings provide insight into when and how monitor leniency can both positively and negatively impact the ability of audits to improve CSR performance.

Zoom link: https://eur-nl.zoom.us/j/92139343485?from=addon

Meeting ID: 921 3934 3485