October 6, 2016 (1:30-3:00 pm)

Supply Chain Screening Without

Certification: The Critical Role of
Stakeholder Pressure
by Susan A. Kayser, John W. Maxwell & Michael W. Toffel
EXECUTIVE SUMMARY Companies are increasingly being held
accountable for their suppliers' labor and environmental performance.
The reputation of Apple, for example, suffered after harsh working
conditions were exposed at Foxconn, one of its key suppliers in China.
Despite the possibility of major reputational risk when problems are
revealed, however, companies face tough challenges managing this
risk because obtaining information about suppliers' labor and
environmental practices can be very costly. Furthermore, buyers can
seldom discern whether the information suppliers provide a fair
representation of their performance or whether it glosses over problem
areas. The authors investigate whether and how "commit-and-report"
voluntary programs, which require companies to make public
commitments and to issue public progress reports (instead of requiring
costly third-party audits), can serve as a reliable screening mechanism
for buyers. Studying the decisions of 2,043 firms headquartered in 42
countries of whether to participate in the UN Global Compact, the
authors find the risk of stakeholder scrutiny deters companies with
misrepresentative disclosures from participating in the Global
Compact. Moreover, this deterrence effect is especially strong 1) for
smaller companies and 2) in countries with stronger activist pressures
and stronger norms of corporate transparency. Overall, this research
reveals the critical role for stakeholder scrutiny to enable buyers to use
"commit-and-report" voluntary programs as a reliable mechanism for
screening suppliers. Key concepts include:

The potential for stakeholder scrutiny deters companies whose

prior reports misrepresent their performance from joining a commitand-report voluntary program.

Smaller companies whose reports are misrepresentative are

especially deterred from joining commit-and-report programs.