The Responsible Corporation: Regulating the Supply Chain
This chapter includes an empirical study examining the reasons why buyer firms will demonstrate a sense of corporate social responsibility in prescribing—and ensuring—socially responsible actions on the part of their supplier firms. Suppliers' products and production processes are increasingly controlled by buyer firms to ensure that suppliers observe the necessary environmental and product quality regulation for quality control; a task traditionally performed by public authorities under a legislative mandate. A transaction cost economics argument within an existing institutional environment is used to explain why firms engage in regulation and control of their suppliers and how this ‘private governance’ is affected by the existence of institutionalized political and legal regulations. This empirical study finds firms acting in a regulatory, and, thus overtly political, manner towards their supplier firms.