Global Supply Chain Sustainability: the Role of Non-governmental Enforcement Mechanisms

Michela Limardi () and Francesca Battista ()
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Michela Limardi: Université de Lille - RIME lab et Université de Paris 1 - Centre d'Eonomie de la Sorbonne
Francesca Battista: College of Liberal Arts and Human Sciences - Virginia Tech

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: Non-governmental organizations (NGOs) exert pressure on multinational enterprises (MNE) to force the application of social and environmental standards for subcontractors in developing countries. Non-governmental regulation relies on voluntary standards defined by the NGOs,or by the MNE themselves. This leads to an uncertainty and social regulation. In this respect, external pressure from NGOs constitutes a reputational risk for the company. MNEs, in turn, try to manage those risks by increasingly monitoring the environmental and social impact of their global suppliers. Two forms of non-governmental enforcement currently prevail: warning (i.e.disclosing information of a violation to the company) versus immediate punishment (i.e. penalizing a company without disclosing information). A theoretical model is developed to determine whether disclosing (or not) information to the MNE about reputational risk is more effective. The results demonstrate that MNEs with a low reputation (or a high degree of out-sourcing) will have a higher incentive to conduct inspections of its global suppliers in a warning regime. Conversely, when MNE visibility is high, disclosing information in advance does not provide additional incentives

Keywords: Corporate Social Responsibility; Non-governmental organizations (NGOs); Enforcement (search for similar items in EconPapers)
JEL-codes: F23 J80 L30 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2022-06
New Economics Papers: this item is included in nep-dem and nep-int
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http://mse.univ-paris1.fr/pub/mse/CES2022/22013.pdf (application/pdf)
https://shs.hal.science/halshs-03704334

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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:22013

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