Re:Structure Labs prepared a report on Cooperation and Punishment in Private Regulation of Labor Standards (January 2026) summarising the findings of research it conducted into the effectiveness of company efforts to manage supplier behaviour through approaches like standards and audits.
Human Level’s Take:
- This research explores how private regulation of suppliers — via setting standards and monitoring compliance — could be made more effective to address risks to workers in the supply chain.
- The research shows that a credible commitment to human rights is essential for private regulation to work. Buying companies often undermine their own standards by sending mixed signals, like demanding compliance while pushing down costs and timelines, and by continuing to source from suppliers with poor practices. To address this, buyers need to demonstrate credible consequences and incentives for human rights performance.
- In addition, long-term, trust-based buyer–supplier relationships are essential. Without stable relationships, suppliers lack incentives to invest in improving practices and companies lack incentives to engage meaningfully with suppliers.
- What does this mean in practice for companies? The most successful approach is likely to be combining private regulation with cooperative efforts to help suppliers meet human rights standards, like capacity-building, better contract terms and other supports.
- The results also suggest that companies will find the most success when they put their money where their mouth is: by setting strong human rights standards and sticking to them, and by ensuring their business model and purchasing practices do not undercut these standards.
- A word of caution: the authors point out that private regulation is not a panacea. It can be narrowly effective for issues like wages and safety, which can be identified and remedied more easily, but it will not be effective for issues that are hidden or systemic, such as freedom of association or forced labour. Experience shows that these types of issues require close cooperation with suppliers in parallel with collective approaches.
Some key takeaways:
- The challenge: Many companies rely on private regulation — meaning setting standards for suppliers, monitoring compliance through audits and remediating violations — to manage labour risks in their supply chains. This approach has drawbacks, for example missing ‘hidden’ risks, failing to consider root causes, factors like irresponsible purchasing practices, and more. However, the authors of the report point out that despite the existence of alternatives (like enforceable brand agreements), other approaches can be difficult to scale. They emphasise that the question is not whether private regulation can stop all instances of abuse, but whether it can help make working conditions better than they would have been without regulation. To answer this, the researchers explored the ways in which private regulation could be made more effective to address labour rights issues in supply chains. Buying companies approach private regulation in different ways: some apply punitive approaches, applying commercial consequences like termination; others use more cooperative, collaborative approaches that de-emphasise penalties and focus on how to build supplier knowledge and capacity to comply.
- Key findings: The authors examined these two modes of private regulation by looking at almost 10 years of pass/fail labour standards audits of over 1,000 suppliers by apparel company Gap Inc. They note that this was a meaningful dataset, in part because the company changed its compliance system over that time period, moving from a cooperative approach to an approach that combined cooperation with penalties like termination where performance did not improve over time. The research showed that issuing a failing grade was only effective when it was backed by the threat of penalties, and that improvements were lower for suppliers where Gap was highly dependent on the supplier. This could suggest that suppliers’ perception of the credibility of the threat was a factor in improving compliance. Importantly, improvements were also stronger among suppliers that had long-term relationships with Gap, suggesting that long-term rather than spot-market sourcing is more conducive to better working conditions.
- Implications for buying companies: What are the practical implications of these findings for companies? First, they show that a credible commitment to human rights can make private regulation effective. The report underscores that many companies send “mixed signals” to suppliers, requiring them to adhere to human rights standards while also cutting costs and speeding up production. What’s more, suppliers with poor human rights practices often still have access to global markets, even without meaningful improvements. As a result, the researchers suggest that buyers need to establish credible consequences for human rights impacts, emphasising that this does not mean ending cooperative efforts but rather pairing cooperation with incentives. Second, the results demonstrate that structuring long-term supplier relationships based on trust and dialogue is critical. If buyers do not build stable relationships with suppliers, suppliers may be disincentivised to invest in changing practices. At the same time, companies need to signal that they are prepared to impose consequences even on suppliers they are highly dependent on, putting their money where their mouth is. The authors issue a caution about the findings, however, noting that private regulation is only effective for certain standards like safety and wages that can be more easily remedied, but will not be effective for issues like freedom of association that require a more holistic approach. Sustained progress across all labor rights likely requires combining private regulation with other worker-empowering governance approaches.
