Working Paper | HBS Working Paper Series | 2014

Supply Chain Screening Without Certification: The Critical Role of Stakeholder Pressure

by Susan A. Kayser, John W. Maxwell and Michael W. Toffel

Abstract

To assess and manage reputational risks associated with supply chains, buyers are increasingly seeking information about their suppliers' labor and environmental performance. Several voluntary programs have arisen to encourage suppliers to report this information in a standardized manner, but the information companies report might misrepresent their performance and can thus mislead rather than inform buyers. We hypothesize particular circumstances in which buyers can screen suppliers based on their participation in voluntary programs requiring public commitments and public reporting. In particular, we theorize that stakeholder scrutiny can effectively deter companies with misrepresentative disclosures from participating in such programs, and that this deterrence effect is stronger for smaller companies and in institutional contexts featuring stronger activist pressures and stronger norms of corporate transparency. Examining the decisions of 2,043 firms headquartered in 42 countries of whether to participate in the UN Global Compact, we find support for these hypotheses.

Keywords: United Nations; Labor standards; Working Conditions; supply chain; supplier relationship; procurement; globalization; governance; sustainability; Sustainability Management; quality; quality and safety; safety; risk; reputation; Globalization; Globalized Markets and Industries; Supply Chain Management; Supply Chain; Corporate Social Responsibility and Impact; Quality; Risk and Uncertainty; Safety;

Citation:

Kayser, Susan A., John W. Maxwell, and Michael W. Toffel. "Supply Chain Screening Without Certification: The Critical Role of Stakeholder Pressure." Harvard Business School Working Paper, No. 15-009, August 2014.