By Thomas G. Altura, Anne T. Lawrence, and Ronald M. Roman
In June 2021, the U.S. Supreme Court ruled in a case brought by six individuals who had, as children, been forced to work on cocoa farms in Ivory Coast, under brutal conditions and without pay beginning in the 1990s. The harvested cocoa—conveyed through the global supply chain—was ultimately used in chocolate products made by the multinational firm Nestlé. While Nestlé did not own or operate the farms where the abuse occurred, the company was sued for complicity in child enslavement. The court ruled against the plaintiff’s standing to sue in U.S. courts, but the case was undoubtedly a blow to Nestlé’s reputation as a family-friendly company marketing candy bars, canned milk, and frozen dinners.
What do companies do to prevent such abuses far from their corporate headquarters? Many have adopted supply chain codes of conduct. These rules, adopted by firms and publicly communicated to their suppliers, establish mandatory standards governing labor, human rights, environmental and related practices. While fewer than 10% of firms had such codes in the early 2000s, the codes later spread widely. By 2015, supply chain codes had been adopted by more than half of the world’s mid-sized and large firms, such as Nestlé.
Back in 2016, we launched our study to determine what drove the diffusion of this new organizational practice. To answer this question, we built an original data set on more than 1,800 large and mid-sized firms headquartered in developed economies covering the period 2006 to 2015, including the year these companies adopted a supply chain code of conduct (if they did) and other firm, industry, and country-level information.
So, why did companies adopt supply chain codes? The answer we found was: It depends on when in the diffusion process the adoption occurred. Early adopters were more likely to be firms that were headquartered in nations with strong unions and extensive laws protecting workers’ rights. These firms had presumably extended rules, which they themselves were already following, to their business partners abroad. Later adopters, on the other hand, were driven not just by such non-market institutions, but also by market pressures. Specifically, later adopters tended also to be firms with valuable brands (and hence vulnerable to changes in consumer expectations) and ones widely scrutinized by stock analysts (and hence vulnerable to changes in investor expectations). In other words, we found time-dependent effects.
To be sure, a supply chain code of conduct only prevents labor abuses and environmental damage to the extent the code is implemented on the ground. This research focused specifically on the drivers of adopting a supply chain code in the first place, an important step toward ethical supply chain management. The findings have advanced our understanding of how new organizational practices emerge and spread among firms, not just in the context of supply chain responsibility, but also CSR more generally.
An enduring debate among scholars of corporate social responsibility has concerned the power of “the market for virtue.” Do companies act in socially responsible ways because the market rewards virtuous behavior? In this view, companies are motivated to “do good” because their customers and investors demand it. By contrast, others have argued that companies are unlikely to act responsibly simply because of market pressures; they must be forced to do so by public policy and government regulation. We suggest that both views may be valid. Market pressures from customers and investors can propel socially responsible behavior, but only after first movers have been compelled by non-market institutions: public policy and the subsequent emergence of new norms about what constitutes good management practice.
Reference:
Altura, T. G., Lawrence, A. T., & Roman, R. M. 2021. The Global Diffusion of Supply Chain Codes of Conduct: Market, Nonmarket, and Time-Dependent Effects. Business & Society, 60(4): 909–942. https://doi.org/10.1177/0007650319873654