Journal of Marketing Channels

ISSN: 1046-669X (Print) 1540-7039 (Online) Journal homepage: http://www.tandfonline.com/loi/wjmc20

Private Governance in the Supply Chain

Debbie M. Thorne & Floyd F. Quinn

To cite this article: Debbie M. Thorne & Floyd F. Quinn (2016) Private Governance in the Supply
Chain, Journal of Marketing Channels, 23:1-2, 11-21, DOI: 10.1080/1046669X.2016.1147340

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 Journal of Marketing Channels, 23:1121, 2016
Copyright C Taylor & Francis Group, LLC

ISSN: 1046-669X print/1540-7039 online

DOI: 10.1080/1046669X.2016.1147340

Private Governance in the Supply Chain

Debbie M. Thorne and Floyd F. Quinn
McCoy College of Business Administration, Texas State University,
San Marcos, Texas, USA

Although there has always been risk in business, information availability, globalization,
outsourcing, and electronic commerce have fundamentally changed how and where busi-
ness takes place. These developments have led to more formal approaches for managing
the entire enterprise, including those dedicated to understanding vulnerabilities and mit-
Downloaded by [217.128.97.213] at 14:43 03 June 2016

igating risks in the supply chain. Today, legal compliance, contractual compliance, and
associated risk management systems are required, but insufficient, for the satisfactory
performance of individual suppliers and the entire supply chain. This article describes
noneconomic interdependencies in the supply chain and advocates for the role of social
responsibility and private governance approaches for managing reputation. Through an
analysis of supplier codes of conduct we examine marketing in practice and suggest future
research opportunities.

Keywords: Boeing, code of conduct, corporate social responsibility, private gover-

nance, reputation, risk management, supplier contracts, supply chain
risk

In early 2013 Boeing experienced a raft of problems with
its 787 Dreamliner that eventually resulted in the ground-
ing of the entire fleet. The most catastrophic of these
problems involved the planes lithium-ion batteries that,
when overheated, were prone to combustion (Denning,
2013). On January 18, 2013, Boeing CEO James McNerny
stated in an open letter to employees:
Since entering service 15 months ago, the 787 fleet has
completed 18,000 flights and 50,000 flight hours with
eight airlines, carrying more than 1,000,000 passengers
safely to destinations around the world. (p. 36)
In the ensuing months, it became clear that these
achievements meant little as this major aerospace
corporation struggled to resolve the recurring problems
of overheated batteries and fears of in-flight fires.
Like many United States (U.S.) companies, Boeing
unreservedly welcomed outsourcing in the manufacture
Address correspondence to Debbie M. Thorne, PhD, McCoy Col-
lege of Business Administration, Texas State University, San Marcos,
TX 78666, USA. E-mail: debbiethorne@txstate.edu
of its Dreamliner. It was envisioned that the Dreamliner
supply chain would result in lower manufacturing and
assembly costs by dispersing the monetary risks of devel-
opment among Boeings suppliers (Denning, 2013).
To that end Boeing employed a new outsourcing model
that utilized a tiered structure that allowed the com-
pany to establish partnerships with approximately 50 Tier
1 strategic associates. These associates assembled major
components from parts produced by subcontracted Tier
2 suppliers. Problems arose when it was discovered that
some of Boeings Tier 1 suppliers did not possess the expe-
rience to effectively manage their secondary suppliers, sig-
nificantly heightening Boeings risk. The magnitude of
this risk was a partial result of the companys inadequate
plan for considerable and ongoing communications with
these suppliers and a commitment to hands-on, on-site
involvement in the quality manufacturing of component
parts.
For communications with and among its suppliers,
Boeing implemented a web-based system called Exostar
that allowed for the entry of up-to-the-minute informa-
tion about the production performance of suppliers. It
 12 D. M. THORNE AND F. F. QUINN
was intended to provide enhanced supply chain visibility,
improve control, increase process efficiency, and reduce
the costs stemming from face-to-face communications
with suppliers located all over the world. Unfortunately,
due to cultural differences and a lack of trust, suppliers
did not provide Boeing with correct and timely informa-
tion. What resulted was a situation such that neither Boe-
ing nor its Tier 1 suppliers became aware of downstream
supplier problems and issues until late in production.
Boeings outsourcing model was adopted in part
from the Toyota supply chain. However, the model
implemented at Boeing failed to consider the values and
practices that have led to Toyotas global success. Unlike
Toyota, the Boeing model relied on poorly designed con-
tractual arrangements, which created perverse incentives
to work at the speed of the slowest supplier, by provid-
ing penalties for delay but no rewards for timely delivery
(Denning, 2013, p. 39).
As Tang et al. (2009) first observed when Boeing began
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its new outsourcing model, the original leadership team
for the new outsourcing model did not include members
with expertise on supply chain risk management. Without
the requisite skills to manage an unconventional supply
chain, Boeing was undertaking a huge managerial risk in
uncharted waters (p. 80). Ultimately, the company was
forced to purchase Vought Aircraft Industries, a Tier 1
supplier, and to provide managerial and manufacturing
expertise to others. Boeing also made payments to strate-
gic partners to compensate them for lost profits due to
production delays.
Fortunately, the fires did not result in casualties or
harm to customers or crew onboard the 787 Dream-
liner. Although Boeing failed to manage the cumulative
effects of its supply chain on the Dreamliners batter-
ies and operation, it escaped more long-term and sig-
nificant damage to stakeholder trust and its corporate
reputation.
Nagging forensic questions persist. Why was Boeing
so enthusiastic and ready to adopt widespread outsourc-
ing? What steps might Boeing have taken to avoid such
a costly and potentially tragic outcome? Considering
lessons learned and some recommended actions for the
company in the wake of the Dreamliner calamity, Den-
ning (2013) suggested the following:
r Where the need for offshoring is anticipated, take
measures to address cultural and linguistic differ-
ences.
r Carefully plan for active engagement in the out-
sourced production to ensure quality and coordina-
tion.
r Mitigate risk by anticipating increased involvement
in the process.
r Cultivate long-term relationships of confidence and
truthfulness with key suppliers.
r Pursue tiered outsourcing only when relationships of
confidence and truthfulness have been cultivated.
As clearly depicted in the Boeing case study, global
sourcing greatly complicates the risks associated with sup-
ply chain operations. This article seeks to advance the
understanding that risks in the supply chain are poten-
tially as great as the risks within an organization and that
private governance strategies must be designed to man-
age the supply chain for both economic and noneconomic
effects, including corporate reputation. To that end we
review the literature on supply chain risk and describe the
emergence of private governance within supply chains.
We advocate the role of corporate social responsibility
(CSR) for improving risk management. Next, we review
four supplier codes of conduct (SCC) and discuss their
commonalities and differences. Finally, we present ideas
for future research efforts and managerial implications.
RISK IN THE SUPPLY CHAIN
Supply chains are optimized in a stable environment free
of weather delays, communication difficulties, accidents,
and marginally solvent partners. The Boeing case pos-
sesses the hallmarks of a high-risk situation in market-
ing channels: a complex end-product, large numbers of
suppliers and subsuppliers, geographic dispersion of part-
ners, information asymmetries, inadequate planning, and
other elements.
This case also exhibits the variables that Zsidisin et al.
(2004) previously identified as contributors to supply
risk. These include goal conflict or a divergence in goals
between the purchaser and the supplier, adverse selec-
tion or misrepresentation by a supplier that leads to its
selection, and moral hazard when a supplier refuses to
exert efforts toward meeting the purchasers performance
requirements.
Even for less complex supply chains and products,
risk may be compounded by a reliance on agile and
lean practices, such as just-in-time (JIT) inventory opti-
mization. JIT optimization depends on downstream cus-
tomer orders to begin the manufacturing process that
stresses resources and quality control systems. These
widely adopted lean practices provide the opportunity
for a significant cost savings and competitive advantage,
but companies also assume a web of risk stretching
upstream and downstream throughout the supply chain
(Chakravarty, 2013, p. 39). Thus, companies are seemingly
faced with a decision continuum, anchored by a low-cost
position with unmanaged risk or a higher cost position
with the implementation of managed risk.
Although there has always been risk in business,
the advent of globalization, outsourcing, and electronic
commerce has fundamentally changed how and where
 PRIVATE GOVERNANCE IN THE SUPPLY CHAIN 13
TABLE 1
Sources of Supply Chain Risks

Category of Risk Examples

Internal to the firm
External to the firm but internal to the supply chain
External to the firm and the supply chain
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Qualities, both positive and negative, of the individuals or groups responsible for
decision making within the organization.
Changes or uncertainty regarding executive leadership.
Shareholder activism.
Poor planning for resource needs.
Lack of information about a competitors plans and activities.
Poor communication strategies.
Incongruent business goals.
Incongruent values and expectations.
Cultural differences.
Lack of mutual trust.
Changes in interest rates, exchange rates, and prices of necessary goods and services.
Unionization and labor policies.
Unexpected policy changes by local or national governments.
Weather delays, earthquakes, tsunamis, and natural disasters.
Military conflict or terrorist activity.
Emergent subcultures and changes in values.

Sources: Brindley (2004), Christopher and Peck (2004), Mandal (2011).

business takes place. Information availability and social
awareness have also raised expectations for transparency
and responsibility in business. These rapid changes have
led to more formal approaches for managing the entire
enterprise, including those dedicated to understanding
vulnerabilities, ensuring reliability, and mitigating the
chances of supply chain disruption.
Table 1 provides an overview of the key sources of risk
in the supply chain based on a typology developed by
Christopher and Peck (2004). The first two risk categories
focus on elements internal to either the firm or its sup-
ply chain; the third category describes risk that cannot be
controlled by the firm or its supply partners. This article
focuses on the first two categories, with an emphasis on
sources of risk internal to the supply chain.
The desire to assess and actively manage supplier
risk stems primarily from achieving greater control of
inbound supply and proactively reduc[ing] the impact of
that supply risk (Zsidisin et al., 2004, p. 401) along with
a growing interest in informing a firms stakeholders of
corporate risk and taking a strategic approach for risk
management. Corporate laws, such as the German Kon-
TraG, specifically requires companies to inform share-
holders of the steps they take to manage risk (Zsi-
disin et al., 2004, p. 401). In the U.S. risk manage-
ment is utilized to meet provisions of the Sarbanes-Oxley
Act of 2002 and state regulations. Risk management
has been primarily associated with corporate compliance
relative to internal controls and financial reporting; eval-
uations by insurance providers and ratings organizations
(i.e., Standard & Poors); and in some cases, industry-
specific risks.
Although it is a relatively simple matter to identify each
type and source of risk, there is a natural interdependency
among them. What often results during the course of
fast-paced and competitive business operations is a highly
complex tangle of risks that ensnare an unwary organiza-
tion. This complexity is derived from two primary sources.
First, decision makers may find it difficult to manage
the quantity and variety of variables that play a role in
shaping a given decision and to assess the relative degrees
of risk they introduce. Second, the interconnectedness
and fluidity of these variables, including the potential for
actions by customers and competitors, produces compli-
cated degrees of risk that may vary greatly during the
decision-making process (Brindley, 2004). Despite good
intentions, companies often make suboptimal decisions
about the supply chain using currently available infor-
mation and resources that are limited in scope or scale
(Roehrich et al., 2014).
In practical terms Wagner and Bode (2008) offer that
risk is understood as the damage or loss resulting from
a supply chain disruption (p. 309). A disruption is char-
acterized by a triggering event that threatens the chains
normal operations, such as a warehouse fire that halts
shipment of raw materials to a manufacturing facility and
subsequently delays production and product deliveries.
Wagner and Bodes conceptualization is associated with
the negative outcomes of risk and reflects extant manage-
rial approaches in industry that are typically focused on
costs associated with a disruption.
A short-lived disruption may go unnoticed by key
stakeholders, but other disturbances may lead to signif-
icant financial losses (Punniyamoorthy et al., 2013). In
addressing the effects of supply chain disruptions on
shareholder value, profitability, and share price volatility,
Hendricks and Singhal (2005) found significant financial
repercussions as listed in Table 2.
 14 D. M. THORNE AND F. F. QUINN

TABLE 2
Financial Effects of Supply Chain Disruptions

Area of Impact Financial Effect

Stock returns Between 33% and 40% lower stock returns relative to their benchmarks over a 3-year time period
that starts 1 year before and ends 2 years after the disruption announcement date.
Share price volatility The share price volatility in the year after the disruption is 13.50% higher when compared with the
volatility in the year before the disruption.
Profitability After adjusting for industry and economy effects, the average effect of disruptions in the year leading
to the disruption announcement is a 107% drop in operating income, 7% lower sales growth, and
an 11% growth in cost.
Performance level Firms continue to operate for at least 2 years at a lower performance level after experiencing
disruptions.
Overall corporate performance It does not matter who caused the disruption, the reason for the disruption, what industry a firm
belongs to, or when the disruption happeneddisruptions devastate corporate performance.

Source: Hendricks and Singhal (2005).

Beyond the costs linked to production and product are both the cause and effect of a commitment to social
condition or lost revenue, supply chain disruptions also responsibility.
present significant strategic and marketing concerns. Dis- As noted in a number of articles in the marketing lit-
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ruptions, especially those associated with ethical lapses,
have the potential to erode partner and customer loyalty,
exclusive relationships, brand equity, and corporate rep-
utation (Chakravarty, 2013). Thus, along with the more
immediate financial repercussions attributed to poor sup-
ply chain performance are the longer term reputational
consequences that must be addressed.
REPUTATION
Relative to supply chain management, Roehrich et al.
(2014) describe reputational risk as the probability that a
negative event or practice occurs along with the proba-
bility that stakeholders will detect the negative event or
practice, and subsequently change their perception and
image of the firm (p. 698). Consistent with Barnett and
Hoffman (2008), we define corporate reputation as the
result of stakeholders collective judgments of a corpo-
ration based on assessments of the financial, social, and
environmental impacts attributed to the corporation over
time (p. 1).
Thus, reputation is associated with an array of deci-
sions, plans, and outcomes that extend far beyond share-
holder needs and financial results and increasingly require
a global perspective. Although profitability and share-
holder value play a role in shaping reputation, intangibles
such as trust, values, and corporate culture are also part
of the equation.
Referred to as noneconomic in this article, percep-
tions and intangible impacts have the potential to raise
the attention of governmental regulators, nongovernmen-
tal organizations (NGOs), media, and consumer groups.
They also provide the opportunity for companies to
achieve competitive advantage and contribute to society.
These noneconomic factors are reflexive in nature: they
erature, CSR is associated with a firms commitment to
the perspectives and interests of a broad group of stake-
holders. This voluntary commitment is linked to plans,
actions, and outcomes that are not explicitly required by
society (Ferrell et al., 2013; Homburg et al., 2013).
To effectively manage a supply chain in todays busi-
ness context, an understanding of noneconomic factors
benefits from the convergence of social responsibility and
risk management programs to ensure a firm achieves
strategic objectives, including the desire to build and
maintain a positive reputation. Reputational effects are
broad and sweeping in their scope and extend well beyond
the more traditional focal effects of risk and disruption
in the supply chain. These risks are associated with cor-
porate governance, ethical practices, and environmental
and social issues. Lemke and Petersen (2013) identified
a number of reputational risks associated with suppliers
and the supply chain, including environmental damage,
low-quality products, and association with groups that
suppress human rights or support socially controversial
practices, among others.
There are many examples in the media of these sup-
ply chain problems that have led to reputational effects
for individual firms. For example, General Motors and
Toyota have recently faced significant scandals for sub-
standard automotive parts, including faulty ignition sys-
tems and defective gas pedals, respectively. Even these
global corporations with sizable budgets, staff, and other
resources are subject to supply chain risks that not only
threaten reputation and image but also require settle-
ments and legal fees costing billions of dollars.
Examples are also available to demonstrate that an
entire industry may be affected when social responsibility
issues are uncovered in a member firms supply chain. In
the 1990s, reports by news outlets and NGOs disclosed
child labor and unsanitary conditions at Bangladeshi
 PRIVATE GOVERNANCE IN THE SUPPLY CHAIN
suppliers to Walmart. These reports prompted Walmart
to cancel contracts with manufacturers in Bangladesh,
although other firms issued stern warnings to suppliers.
Public outcry in the U.S. led to proposed federal regula-
tion that would have stymied the Bangladeshi economy.
Before the legislation was enacted, the Bangladesh Gar-
ment Manufacturers and Exporters Association agreed
to end child labor and the retail apparel industry rallied
to develop strict codes of conduct (United States Depart-
ment of Labor, 1996). These efforts continue today.
Fauchart and Cowan (2014) refer to a reputation
commons that exists when the reputations of compa-
nies in a given industry are considered virtually indistin-
guishable as stakeholders either do not or will not attempt
to consider each companys unique actions, values, and
identity. Often the reputation and actions of one com-
pany are seamlessly assigned to other companies in the
same industry, especially after a serious legal or ethical
lapse.
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For example, after the 1989 Exxon Valdez oil spill
in Alaska, major oil companies with interests in the
Alaskan pipeline increased their social and environmen-
tal disclosures. This enhanced reporting came in the wake
of intense public scrutiny and federal passage of the
Oil Pollution Act of 1990 that included new require-
ments for contingency planning and financial responsi-
bility by all members of the oil industry (Patten, 1992).
This contagion effect, often pronounced during turbu-
lent times, demonstrates that action or inaction associ-
ated with one corporate actor may easily affect the repu-
tations, policies, and prospects of similar firms (Goins &
Gruca, 2008).
PRIVATE GOVERNANCE
Although an industry reputation commons is conceptu-
alized as a horizontal phenomenon that affects firms at
similar positions in an industry, the actions of firms in
the same supply chain signal shared values and meanings
and potentially contribute to all members reputations.
The traditional mechanisms for managing contagion and
the effects of suppliers on a focal firms reputation include
contracts and public regulation.
A supply contract is a written arrangement between
a purchaser and outside supplier that addresses the pro-
duction and delivery of products or services (Nosoohi &
Nookabadi, 2014). In addition to a listing of products to
be provided, the contractual agreement identifies deliv-
ery schedules, party responsibilities, product pricing, and
payment. Business contracts expedite compliance and
provide an instrumental function that may be perceived
as coercive or, at the very least, more focused on sanc-
tions than rewards. Concurrently, legal requirements rep-
resent the mandatory relationship between nation-states
15
and industry and may focus on technical specifications
and related matters to produce industry standards, main-
tain reasonable pricing, and set health and safety expec-
tations. These approaches are consistent with scholarship
in marketing channels in the late 20th century that typi-
cally focused on governance structures that ensured effi-
ciency and control and minimized partner opportunism
(e.g., Heide & John, 1988).
There are newer forms of control that set forth social
obligations based on norms and values, prescribe stan-
dards of appropriate action, and are typically free from
legal and governmental intervention. Private governance
begins with an analysis of risks, both economic and
noneconomic, and evolves into mechanisms that are
much more than laws or contracts: often they exclusively
reflect socially responsible expectations for corporate con-
duct, environmental impact, health and safety, labor rela-
tions, and similar concerns. These self-regulatory mecha-
nisms take many forms and include common rules, mem-
oranda of understanding, regulatory contracts, codes of
conduct and [a variety of] voluntary agreements (Cafaggi
& Renda, 2014, p. 8).
The emergence of private governance primarily stems
from factors such as economic globalization, a lack of
adequate regulation at both the national and interna-
tional levels, and a decrease in state involvement in
business practices following privatization and deregula-
tion (Knudsen, 2013). According to Cafaggi and Renda
(2014), global value chains, fast-changing markets, and
informational asymmetries have also contributed to the
necessity of private governance. In response to these fac-
tors private regulation has developed into a leading form
of rule establishment in a multitude of areas from product
advertising to financial services, food product safety, and
environmental and other societal concerns. In address-
ing reputational risks, organizations around the globe
are assuming greater responsibility over the control of
supplier operations (Knudsen, 2013; Locke et al., 2013;
Mitkidis, 2014).
For example, Scruggs (2013) discusses efforts aimed
at reducing hazardous chemicals in consumer prod-
ucts and outlines common practices within the chemical
industry intended to protect consumers. One such prac-
tice is termed supply chain influence and involves the direct
interaction between purchasing companies and their sup-
pliers to standardize product requirements for an entire
industry. For example, standards were recently promul-
gated via the Global Automotive Declarable Substance
List (GADSL) to specify use and reporting require-
ments for potentially harmful substances in automo-
tive manufacturing. Scruggs notes that nearly every
major automaker and parts manufacturer signed onto
GADSL.
The result of these initiatives is that suppliers must
comply with the newly established standards to be viable
 16 D. M. THORNE AND F. F. QUINN

and competitive in the marketplace, regardless of the sup- TABLE 3

pliers current or future business partners. These efforts Examples of Private Regulation
are productive in other industries, too. Multinational cor- Sponsor Impetus Example
porations have experienced pressure to adopt private reg-
ulatory standards to address poor working conditions in Company Respond to Starbucks Coffee Companys
international factories (Knudsen, 2013). investor and Supplier Code of Conduct
consumer initiated after investors and
Attempts at supranational private governance include pressure consumers complained about
expectations and goals set forth in international conven- conditions at its Guatemalan
tions such as the United Nations (UN) Global Com- coffee plantations.
pact, the UN Universal Declaration of Human Rights, Industry Preempt Responsible Care initiative in
and the International Labor Organizations Interna- government the chemical industry
action required for all members of
tional Labor Standards. There are also organizations the American Chemistry
focused on social and environmental issues that include Council and similar groups.
specific measurement standards and require auditing Industry Respond to Forest Stewardship Council
approaches. public and (FSC): governments and
For example, the International Organization for Stan- private companies have policies that
concern provide incentives for
dardizations ISO 14000 provides voluntary standards FSC-certified products or
addressing eco-labeling, environmental management sys- prefer FSC-certified products.
tems, environmental performance evaluation, and envi- Industry Align mission Marine Stewardship Council:
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ronmental product standards. The Social Account- and values voluntary standards and
ability Internationals SA 8000 is a standard dealing with public eco-label for sustainable
interest seafood.
with human rights issues including child labor, slave NGO Combine Carbon Disclosure Project
labor, workplace safety, the right of workers to orga- economic (CDP): on behalf of
nize, discrimination, discipline, compensation, working pressure institutional investors, CDP
hours, and human resources management practices and and social seeks environmental data
systems. agenda from worlds largest publicly
listed firms.
Vogel (2010) identified more than 300 codes of conduct NGO Drive progress Oxfam International: recent
that privately govern a wide range of industries with most on specific campaign to strengthen land
addressing labor or environmental issues. Some indus- social issues rights in developing countries
tries, such as apparel manufacturing, operate with multi- resulted in new commitments
ple codes. In its Conscious Actions Sustainability Report by Coca-Cola and PepsiCo.
2013, Swedish clothing retailer H&M references com- Sources: http://globalassets.starbucks.com/assets/ada1f37e34954eb1
mitment to the standards of the Fair Labour Associa- 883a6b32d3e8a430.pdf; http://responsiblecare.americanchemistry.com/;
tion, Universal Declaration of Human Rights, Interna- https://us.fsc.org/; http://www.msc.org; https://www.cdp.net/en-US/Pag
tional Labour Organizations Declaration on Fundamen- es/HomePage.aspx; http://www.oxfam.org/en/campaigns/grow
tal Principles and Rights at Work, Better Cotton Initia-
tive, the UN Convention on the Rights of the Child, and
The Leather Working Group among other codes and sig- values of a firms home country as well as expectations
natory groups (H&M, 2014). and standards set by the company itself, industry associa-
Table 3 provides examples of private regulation along tions, international conventions, NGOs, and stakeholder
with the identification of the sponsoring organization and groups. In the supply chain, private governance reflects
its perceived reason for engaging in the regulatory action. the codification of values, standards, and expectations
Of these, SCCs, the principal instruments discussed in this that extend beyond legal requirements and traditional
article, are private regulatory vehicles by which buyers contracts between companies and suppliers (Jiang, 2009;
direct suppliers social responsibility practices and miti- Locke et al., 2013; Mitkidis, 2014).
gate reputational risk. This article focuses on private governance as mani-
fested in SCCs that are written and promulgated by the
final, and often the most powerful, organization in the
supply chain (e.g., Boeing, Toyota, Walmart). Thus, these
SUPPLIER CODES OF CONDUCT codes are a phenomenon largely associated with multi-
national firms headquartered in developed economies
The circumstances that led to the development of pri- and countries. These factors make such firms vulnera-
vate governance systems are varied and continue to evolve ble to stakeholder activism, legal intervention, and other
as the result of complexity and stakeholder influence in criticism. For example, the Rainforest Action Network
the global economy. These systems incorporate laws and directly targeted Home Depot and Lowes because of the
 PRIVATE GOVERNANCE IN THE SUPPLY CHAIN
business practices of a major supplier, Georgia Pacific
(Assadourian, 2006).
In contrast to other forms of private governance,
SCCs have the distinct advantage of originating from one
organization and therefore are potentially grounded in
the firms core values, mission, culture, operating pref-
erences, and internal code of conduct. SCCs often refer
to industry standards or global conventions, some of
which incorporate aspirations that may be difficult to
implement. Theoretically, an SCC would not only cap-
ture the unique identity and goals of the originating
organization but also could make generalized statements
found at a broader level more tangible and actionable.
For example, an SCC could incorporate practices and
expectations that relate to the broad tenets and princi-
ples of the UN Global Compact (e.g., include specific
actions to support Principle 8 of the Global Compact to
undertake initiatives to promote greater environmental
responsibility).
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Implementing an SCC is important to purchasing
organizations for many reasons, including serving as a
potential source of competitive advantage and preventing
reputational damage that can arise as a result of accidents,
violations, and other miscues by a supplier. Although
suppliers are generally adept and focused on production
and cost containment, they may be less concerned or
familiar with matters related to CSR. Geographic dis-
persion and cultural differences also add to the myriad
challenges that purchasing organizations face, especially
in training, monitoring, and enforcing provisions of the
SCC.
In a review of private regulation, state regulation,
and the enforcement of standards in global supply
chains, Locke et al. (2013) concluded that private reg-
ulation of suppliers has varying effects and purposes
across countries with different degrees and methods
of regulatory oversight and prosecution. In countries
with more aggressive regulation and enforcement, pri-
vate efforts serve to complement more rigorous govern-
ment programs, whereas in countries that are poorly
regulated with little or no enforcement, private compli-
ance offers a substitute for government regulation and
enforcement.
Often codes of conduct are found in production or ser-
vice arrangements with suppliers in countries where rights
and laws are not strictly enforced. In some cases the con-
ditions of an SCC may serve to inadvertently encour-
age violations to meet heavy production demands and
low per-unit pricing (Jiang, 2009). Further, Locke et al.
(2013) acknowledged realizing issue-specific improve-
ments within supply chains is a more complicated process
than previously theorized (p. 544).
Adding greater complexity to this situation are efforts
by governments to hold purchasers legally liable for the
actions of their suppliers. Posthuma and Bignami (2014)
17
examined public and private regulation in Brazils apparel
industry and reported on the outcome of an investigation
by public labor inspectors into forced and trafficked labor.
The resulting commission findings concluded that retail-
ers are legally liable for working conditions throughout
their entire value chain (p. 353) and that retail buy-
ers could not be absolved because contracts included
clauses that required suppliers to meet national labor
regulations. It is clear that firms are increasingly being
held responsible for the actions of their suppliers and
mechanisms are necessary to avoid growing, inextricable
risk.
ANALYSIS OF SUPPLIER CODES OF CONDUCT
Given the considerations discussed in this article, we have
undertaken a review of four SCCs currently in force in
the electronics industry, the results of which are found in
Table 4. The companies chosen for analysis were selected
from the 2014 Fortune magazine list of most admired
electronics companies (Mehta & Fairchild, 2014): Gen-
eral Electric, Samsung Electronics, Siemens, and Emer-
son Electric. The electronics industry was chosen for sev-
eral reasons. First, electronics are critical components in
a wide variety of common products. These components
include the potentially faulty and fire-prone lithium-ion
batteries found on the 787 Dreamliner. Second, the ubiq-
uitous nature of electronics resides within a global mar-
ket with a large number of subcontractors. Third, the
industry has been compared with the apparel and shoe
manufacturing business that has experienced significant
questions regarding child labor, environmental waste, and
other social responsibility issues. Finally, the electronics
industry has sought to self-govern through several mech-
anisms, most notably the Electronics Industry Code of
Conduct (EICC) (Brown, 2009).
The unit of analysis for this study was the SCC made
available by each company. These codes were accessed
online; therefore, only publicly available documents were
considered during the analysis. Two independent raters
coded each SCC for content and process. Given the broad
nature of most codes of conduct, it is not surprising that
nearly 20 content, process, and related categories were
identified.
The inclusion or exclusion of certain content in the
SCC reflects priorities, concerns, and goals of the orig-
inating company. For example, an SCC that references
industry-level best practices and agreements reinforces the
companys commitment to an additional form of private
regulation beyond its own code. Content areas, such as
prohibition of child labor and standards for environmen-
tal protection, represent key risks within the supply chain.
As shown in Table 4, the content of supplier codes
in the electronics industry maps to fundamental notions
 18 D. M. THORNE AND F. F. QUINN

TABLE 4 of CSR. In particular, all codes stated expectations for

Supplier Code of Conduct Characteristics ethical practice and all but one was explicit regarding
Content and General Samsung
the necessity of legal compliance. All SCCs in this study
Process Electric Electronics Siemens Emerson addressed ethical issues regarding child labor, human and
worker rights, health and safety, and environmental pro-
SCCa page count 4 13 23 2 tection. Three of the four companies referred to their
Content
Expectation of X X X X
own code of conduct within the SCC and two referenced
business ethics / global or supranational codes.
integrity Process elements include supplier policies or proce-
Prohibition of child X X X X dures intended to ensure code compliance, provisions for
labor monitoring and enforcement, consequences of noncom-
Provisions for X X X X
employee health and
pliance, and discussions of requirements for subsuppli-
safety ers. These process features provide direction for the imple-
Provisions for human X X X X mentation of the SCC and clarify the extent that suppliers
and worker rights will be held accountable. In contrast to the content areas,
Provisions regarding X X X X the SCCs provided less process direction and expectations
environmental
protection
regarding how suppliers should implement the code and
Expectation of legal X X X would be accountable for the code.
compliance General Electrics (GE) SCC is brief at four pages. In
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Safeguards for X comparison to the other three industry SCCs reviewed in

intellectual property this article, GEs code possesses much of the same content
References the X X X
company code of
related to prohibitions of child labor as well as provisions
conduct for the health and safety of supplier employees, human
References X and worker rights, and environmental protection. In addi-
industry-specific tion, GE provides access to an ethics hotline or help desk
codes and also addresses whistle-blower protection.
References global / X X
supranational codes
Samsung adopted the EICC industry-level code of
Provides whistle-blower X conduct as its SCC and supplements the code with a Val-
protection idated Audit Process that includes third-party evaluation
Process by a verification agency selected by the EICC. Samsung
Links SCC to X X has implemented an organizational structure and formal
contractual
obligations of
process for engaging in stakeholder dialogue. Samsung
suppliers clearly signals its commitment to private governance via
Requires supplier X X the practices and principles co-determined by the industry
systems or policies to collaboratively. However, this global firm does not appear
ensure SCC to have woven its core values and unique qualities into the
compliance
Provisions for X
SCC.
compliance Siemens SCC was the most comprehensive code as it
monitoring and was documented in a 23-page report that included key
enforcement of SCC executives signatures, photos, case studies, and exam-
Lists consequences of X X ples of supplier success and presented questions aimed
noncompliance with
SCC
at teaching suppliers how to interpret the SCC. Siemens
Documents availability X X X used engagement techniques that were not found in the
of ethics hotline or other three codes, likely reflecting the firms corporate
help desk culture and relationship-building approach with supplier
Requires subsuppliers Xb X X partners. The visual and instructional nature of the SCC
to adhere to SCC
seems to communicate that Siemens is serious about its
a Indicates
supplier code of conduct. commitments and understands that suppliers need sup-
b For
government contracts only. port and direction for implementing the code.
Sources: http://www.ge.com/files_citizenship/pdf/ge_integrity_guide_ Emersons SCC is straightforward and is also relatively
suppliers_2009.pdf; http://www.samsung.com/us/aboutsamsung/corpcit brief at two pages. The code begins with a statement
izenship/environmentsocialreport/environmentsocialreport_EICC.html;
https://w5.siemens.com/cms/supply-chain-management/en/sustainabili
whereby the company expects its suppliers to embrace
ty/Documents/coc/Code_of_conduct_eng_5_FINAL.pdf; http://www. its values and principles. Emersons approach may be
emerson.com/SiteCollectionDocuments/Emerson_Supplier_Code_of_ perceived as more directive and less collaborative than
Conduct.pdf the other codes. However, the SCC lays out specific
 PRIVATE GOVERNANCE IN THE SUPPLY CHAIN
expectations and is clearly written, likely to make it easier
to comprehend within a global supply chain.
These codes of conduct cast new light on the private
obligations within marketing channels and relationships.
However, even within a single industry, it is apparent that
supplier codes vary greatly in terms of their individual
components and therefore lack consistency in their scope
and potential effectiveness.
Of these major companies in the electronics indus-
try, a review of their SCCs revealed inconsistency with
respect to provisions for monitoring and policy enforce-
ment, safeguarding of intellectual property, and affording
whistle-blower protection. In short, the codes may lack
significant oversight and penalizing provisions, meaning
that there are no penalties in the code to force action.
Although there appears to be general agreement that child
labor, worker safety, human rights, and environmental
protection need to be addressed in such documents, the
lack of emphasis on oversight is troubling. This concern
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is bolstered by the work of Cafaggi (2010), who identi-
fied four dimensions that must be considered and incorpo-
rated into standards and processes contained in any SCC.
These dimensions include a need for the availability of
enforcement mechanisms as well as regulatory standards
that serve to achieve corporate objectives and desired
ends.
SUMMARY AND CONCLUSION
In line with recent proposals about the future of mar-
keting thought (Kumar, 2015), this article has exam-
ined both marketing in practice and social and cultural
developments in an initial attempt to gain new and
actionable insights and uncover additional research direc-
tions. Although the distinct concepts of CSR, reputation,
and risk management are well understood, the expanded
notion presented in this article is less well-explored. Legal
compliance, contractual compliance, and associated risk
management systems are required, but insufficient, for
the satisfactory performance of individual suppliers and
the entire supply chain. Concurrently, the effects of the
company you keep (Barnett & Hoffman, 2008, p. 1)
and resulting reputational interdependence of the supply
chain eclipse corporate boundaries.
The process of managing reputation and social respon-
sibility throughout the supply chain demands a new type
of research and practice. As demonstrated, risk manage-
ment programs are often prompted by a concern for con-
tractual compliance, but there is increasing recognition of
noneconomic and reputational interdependencies in the
business environment. The marketing channels literature
has mirrored this shift, from one aimed at costs and trans-
actions to an explicit interest in stakeholders, networks,
and relationships (Van Weele & Van Raaij, 2014).
19
Theory and research associated with marketing chan-
nels has illustrated the critical role of trust, but less atten-
tion has focused on how such efforts interrelate and are
made material in practice (Locke et al., 2013). SCCs rep-
resent a tangible approach that is gaining traction in busi-
ness practice. Long-term studies are needed to address the
form, content, and effectiveness of SCCs within the sup-
ply chain as well as studies that compare various forms
of private governance (i.e., industry codes, global codes,
and company-specific codes). This line of inquiry will also
benefit from interdisciplinary and multidisciplinary per-
spectives on both the theory and practice associated with
reputation, social responsibility, risk management, and
supply chains.
For SCCs to be effective they must be based on norms
and values that are diffused within the supply chain. This
diffusion is grounded in strong network ties that are the
result of time, emotional intensity, and the reciprocity that
characterize the tie (Yan et al., 2015). As the Boeing case
illustrated, the quality, not quantity, of relations is most
advantageous to the supply chain, even if they take sig-
nificant time and resources to develop.
The marketing channels literature is replete with arti-
cles that document the critical role of relationships. How-
ever, more research is needed to examine the ways that
both risk management and social responsibility affect
the quality, duration, and resilience of relationships in
the supply chain. As a case in point, Parker and Barkai
(2010), in a discussion regarding suggested best prac-
tices within the electronics industry, revealed a belief by
many industry leaders that during a product life cycle
supplier performance can naturally deteriorate over time.
This phenomenon is attributed to early interest in lobby-
ing and securing a contract. The need for ongoing collab-
oration with suppliers throughout the product life cycle
is clearly articulated by the authors. Interestingly, beyond
this work there is little to be found within the industry
addressing best practices.
Another line of inquiry is associated with the extent
that stakeholders are able to identify the collective rep-
utation of a supply chain. Although industrial buyers
may be aware of the participants in a given supply chain,
many consumers have little knowledge of the subcontrac-
tors that produce goods and services for common use.
Research in economics suggests that a collective reputa-
tion is often driven by perceptions and beliefs about the
most recognizable or largest member (Castriota & Del-
mastro, 2015). This is consistent with case studies pre-
sented in this article wherein large multinational firms
with household names are held accountable for supplier
actions and expend resources to respond to and manage
reputational risks and outcomes.
Further, there exist no standard processes or puni-
tive actions for deviancy among industry coalition par-
ticipants. Within the electronics industry, the loosely
 20 D. M. THORNE AND F. F. QUINN
organized EICC simply requires participants to establish
a complementary management system to provide and / or
address, among other things, a declaration of company
commitment, audits and assessments, and measures of
corrective action. The EICC provides no further elabora-
tion on participant compliance and certainly provides for
no industry-level sanctions for violations by either partic-
ipants or suppliers (cf. Electronics Industry Citizenship
Coalition, 2014).
To address these myriad complexities and avoid poten-
tial legal liability, a host of intervention measures and
strategies are necessary to properly engage and manage
the supply chain in the global economy. In addition to
the use of motivational strategies to promote voluntary
efforts, employee and management training programs and
quality audit programs are important elements of manda-
tory compliance efforts (Lin et al., 2013).
Historically, interorganizational skills associated with
demand forecasting and supply planning, sourcing and
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supplier management, customer and distribution chan-
nel management, production planning and control, and
information systems for logistics and production planning
were considered critical skills for all levels of manage-
ment (Lorentz et al., 2013). Although this continues to
be the case for midlevel managers, executive-level educa-
tion related to supply chain management has evolved over
time with a shift in focus from competencies to broader
strategy deployment and change management initiatives
stressing the successful design and execution of programs
(Bernon & Mena, 2013). One such design and program
shift for senior executives clearly involves a migration
from traditional and progressively inadequate supplier
contracts to deeper and more directive SCCs informed by
both risk and social responsibility initiatives.
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