MSc Supply Chain Management
The role of Codes of Conduct in Buyer-Supplier
Relationships: A supplier’s perspective
MSc Thesis
Groningen June 2019 Author: Panagiota Giannakou
Student Number: 3202046
Email: p.giannakou@student.rug.nl Supervisor: Dr. Kirstin Scholten
Co-Assessor: Prof. Manda Broekhuis Date: June 24th 2019
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Abstract
Purpose-The purpose of this study is to examine the relationship between the buyers’ Code of
Conduct (CoC) and suppliers’ relational behaviour. Given that CoC consist of behavioural standards and guidelines that are introduced to suppliers prior to the contract being signed, this study focuses on this pre-contractual stage of the relationship, while examining the topic from a supplier’s perspective.
Design/Methodology/Approach- Exploratory individual interviews were carried out with
sales and marketing representatives from companies in the manufacturing sector (chemicals, FMCG, machinery, automotive). Primary data consisted of 11 semi-structured interview transcripts, while secondary data included the suppliers’ websites, annual reports and Code of Conduct documents.
Findings- The findings suggest that the content of CoC, namely the subjects they (do not)
touch upon, the language used and the values that underlie the text, represent elements that motivate the suppliers’ exhibited flexibility and information exchange. Though, it is not the content as phrased or described literally in the CoC that motivates the suppliers’ flexibility, but rather the content’s (legal or contractual) basis and origin and the values that underlie the provisions included, as also reflected in the language used.
Originality/Value- This study is one of the first to explore how CoC influence relational
behaviour, especially during the pre-contractual stage. Given the gap in literature, that has examined CoC during the ex-post contract management stage, this study contributes to literature by addressing this gap and establishing the role of CoC in the formation of the social contract.
Keywords- Code of Conduct, relational behaviour, exploratory interview, social contract
Acknowledgement
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Table of Contents
1. Introduction ... 1
2. Theoretical Background ... 3
2.1 Codes of Conduct ... 3
2.1.1 Codes of Conduct in buyer-supplier relationships ... 3
2.1.2 What are Codes of Conduct? ... 3
2.1.3 Content of Codes of Conduct ... 4
2.2 Relational Behaviour ... 6
2.2.1 Flexibility ... 7
2.2.2 Information Exchange ... 8
2.3 Conceptual Model ... 8
3. Method ... 10
3.1 Research Design/ Method ... 10
3.2 Research Context ... 10 3.3 Interviewee Selection ... 10 3.4 Data Collection ... 11 3.4.1 Primary Data ... 11 3.4.2 Secondary Data ... 12 3.5 Data Analysis ... 13 4. Findings... 21 4.1 Legal Obligations ... 25 4.1.1 Flexibility ... 25 4.1.2 Information Exchange ... 28 4.2 Alignment of Values ... 29 4.2.1 Flexibility ... 30 4.2.2 Information exchange ... 30
4.3 Tone of Language used ... 32
4.3.1 Flexibility ... 32
4.3.2 Information exchange ... 33
4.4 Lack of Explicit Definition ... 33
5. Discussion ... 35
5.1 Use of Codes of Conduct and Supplier’s Relational behaviour ... 36
5.2 Codes of Conduct & Social Contract development ... 36
5.3 Codes of Conduct and Relational Governance ... 37
6. Conclusion ... 39
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1. Introduction
According to Erwin, (2011), Codes of Conduct (CoC) contain principles constituting good corporate governance, in the form of best practice provisions. As a result, these provisions create a set of standards regarding the conduct of the company and its stakeholders (Kaptein & Schwartz, 2008). CoC often guide such behaviour by formalizing rules that are already established in law, or state company principles that are supposed to be governing the buyer’s behaviour and express the way they aim to conduct business with stakeholders (Bondy, Matten, & Moon, 2004; Kaptein & Schwartz, 2008). Introduced to suppliers at the beginning of a buyer-supplier relationship (BSR), one could argue that they set the rules that will govern the relationship later on. Literature on relational governance though, poses that relationships are governed, aside from contracts, by shared values and expectations the parties develop in the form of relational behaviour norms (Addae-Boateng, Wen, & Brew, 2015; Ivens & Pardo, 2007). It is these (values, norms) that go on to influence and shape relational behaviour norms such as flexibility and information exchange(Ivens & Pardo, 2007). Based on these arguments, could CoC influence and shape such norms? Literature has yet to provide an answer to that question.
Studies examining internal CoC, have established that connection, arguing that CoC do influence the values underlying employees’ behaviour and the norms they follow in their daily business (Raiborn & Payne, 1990; Somers, 2001). Whether or not CoC directed to suppliers have the same effect remains unknown. When used in BSRs, CoC are used to regulate traditional business issues: compliance with regulations, corruption, supplier behaviour, reputation improvement (Bondy, Matten, & Moon, 2008). Moreover, in that context, CoC have only been examined during the contract management stage, leaving any effects they might have at the earlier stages, unknown (Pedersen & Andersen, 2006; Plambeck & Taylor, 2016). Based on the fact that buyer’s CoC propose acceptable practices and behavioural prescriptions on topics internal to the supplier’s company (employee remuneration or production processes), they have the potential to influence the supplier’s behaviour from early on, at the pre-contractual stage, when they are usually introduced, as studies suggest that it is during this stage that parties build a common understanding (Broekhuis & Scholten, 2018).
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to share information with them, literature has ignored what drives suppliers’ flexibility or will to exchange information (Liker & Choi, 2004). Moreover, establishment of relational behaviour norms has exhibited better results on limiting opportunism and enhancing commitment and cooperation, as they act as informal internal controls of behaviour (Chen & Lee, 2017; Huang & Chiu, 2018; Ivens & Pardo, 2007; Lai, Tian, & Huo, 2012; Nyaga, Whipple, & Lynch, 2010). Behavioural prescriptions, goals and principles such as transparency and collaboration are expressed in CoC, but their influence on supplier’s behaviour has not been investigated. As such, CoC appear to have all the potential to shape and guide the development of such norms. Nevertheless, how the content of CoC influences the relational behaviour norms of the supplier and consequently the behaviour, is little understood. Consequently, this study aims to bridge this gap in literature, addressing the following research question:
How does the buyer’s CoC influence the supplier’s relational behaviour?
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2. Theoretical Background
2.1 Codes of Conduct
Codes of Conduct in buyer-supplier relationships
CoC are used to regulate traditional business issues: compliance with regulations, internal conflicts of interest, corruption, supplier behaviour, reputation improvement (Bondy et al., 2008). Serving as a way for companies to communicate their values, goals, expected behaviours and practices, they have the potential to influence BSRs even before a contract is signed. While, in the context of BSRs, they are internal documents issued by buyers, CoC provisions are extended to external parties like suppliers in the form of supplier requirements or Supplier CoC (Kaptein & Schwartz, 2008). Their content can signal to stakeholders what behaviour the buyer will exhibit and what behaviour they expect from their suppliers. Furthermore, their implementation in BSR is not the result of negotiations, like contracts, but are rather “imposed” to suppliers. To that respect, their content and phrasing can transmit different signals to suppliers, regarding sanctions and general norms and values that they are expected to abide by (Bondy et al., 2008; Hoang & Jones, 2012; Kaptein & Schwartz, 2008; Lin & Lin, 2009). Based on the characteristics of CoC, and similarly to contracts, each supplier might interpret their content differently, thus influencing differently their relational norms and behaviour (Jap & Ganesan, 2003; Zheng, Roehrich, & Lewis, 2008).
What are Codes of Conduct?
Examinations of CoC, resulted in multiple definitions of the term. Kaptein & Schwartz, (2008), proposed the definition that is adopted by this study, as it is the only one in literature acknowledging the evolving nature of CoC (Withers & Ebrahimpour, 2013), their main common objective in all variations, and the different audience(s) it can target. They proposed the term “business code” as a means of encapsulating all these different parts of CoC that prior literature had examined. Furthermore, they defined it as “…a formal document containing a
set of prescriptions developed by and for a company to guide present and future behavior on multiple issues of at least its managers and employees toward one another, the company, external stakeholders and/or society in general.” (Kaptein & Schwartz, 2008: 113). Earlier
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"…a set of written principles, guidelines or standards, which are intended to improve the company’s social and environmental performance…” including “...social and environmental requirements for suppliers" (Pedersen & Andersen, 2006:230).
Content of Codes of Conduct
Several studies have been conducted regarding CoC, their content and the multiple ways they are used (Bondy et al., 2004, 2008; Kaptein & Schwartz, 2008; Kolk, van Tulder, & Welters, 1999; Stevens, 1994, 2008). Regarding their content, CoC used in BSRs, can cover a broad spectrum of topics: company principles, values and goals, human rights and labour laws, definition of unethical or illegal practices (corruption, competition, anti-trust), environmental and sustainability provisions and standards (Stevens, 1994, Kolk et al., 1999). Several academics have classified them based on content or audience (Kaptein & Schwartz, 2008; Oehmen, De Nardo, Schönsleben, & Boutellier, 2010), their quality (Erwin, 2011), the language used and on all these factors together (Stevens, 1994, Kolk et al., 1999). On the other hand, researchers have identified that common values underly the majority of CoC, such as social equity/ justice, human rights, competence and integrity (Getz, 1995; Raiborn & Payne, 1990).
Building on existing literature, this study defines the content of CoC based on the three categories proposed by Kolk et al. (1999), namely social, environment and generic and the
language and length of the document (Stevens, 1994). As such, CoC are operationalized based
on the subjects they contain and format they use (see Table 1).
Table 1: Operationalization of Codes of Conduct
Variable Dimensions Details/Definition Based on/ Source
Subjects
Social Employment, training, working conditions, industrial relations Kolk et al., (1999), Tulder & Kolk, (2001), Oehmen et al., (2010), Stevens, (1994) Environment Management policies, input/output, stakeholders, sustainable
development
Generic Consumer interests, communities, global development, ethics, legal requirements
Format
Length The length of the CoC document Stevens, (1994), Raiborn
& Payne, (1990), Kolk et al., (1999), Bondy et al., (2004, 2008), Pedersen & Andersen, (2006) Language The phrasing of CoC provisions, using punitive language or simply
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2.1.3.1 Subjects
In the context of BSRs, CoC can cover a variety of subjects. The most cited subject is literature consist of typical managerial issues, guidelines for practices (e.g. non-discrimination), environmental goals and standards or human rights and labour standards (Kolk et al., 1999; Pedersen & Andersen, 2006; Stevens, 1994). Researchers have occasionally proposed additional subjects such as health and safety, ethics and compliance (Oehmen et al., 2010). This study though, uses three dimensions only, as the above subjects can easily be classified under the ones proposed by Kolk et al., (1999). Issues such as labour laws, safety and health provisions and industrial relations like collective bargaining are classified under the Social dimension (Kolk et al., 1999; Oehmen et al., 2010; Stevens, 1994; Tulder & Kolk, 2001). The
Environment covers issues such as environmental management strategies and vision, relations
with stakeholders such as legislators, communities, suppliers and customers, as well as sustainable development issues and global standards (Kolk et al., 1999; Oehmen et al., 2010; Stevens, 1994; Tulder & Kolk, 2001). Lastly, the Generic dimension includes topics such as the legal requirements the company abides by, ethics and values of the company such as human rights, equality, transparency, honesty and unethical practices (Kolk et al., 1999; Oehmen et al., 2010; Stevens, 1994; Tulder & Kolk, 2001). Among factors that can influence the content of CoC can be the company’s size (Withers & Ebrahimpour, 2013) and the country of the firm (Bondy et al., 2004).
2.1.3.2 Format
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less elaborate contracts allow for more adaptation and flexibility, studies examining CoC have not examined the influence of CoC format on BSRs (Broekhuis & Scholten, 2018; Klein Woolthuis, Hillebrand, & Nooteboom, 2005; Zheng et al., 2008)
As mentioned, CoC are often discussed at the pre-contractual stage of a BSR, and contain prescriptions for behaviour, values and business practices on multiple issues (Erwin, 2011; Kolk et al., 1999; Raiborn & Payne, 1990). As such, they could influence the relational behaviour of a supplier and the development of a common understanding among the parties. Afterall, it is during this stage that the parties establish shared norms and values (Broekhuis & Scholten, 2018). Thus the CoC, as the buyer’s indication of such values and norms could potentially influence the supplier’s norms and consequent relational behaviour. Especially when CoC provisions are somewhat imposed to suppliers and require them to adapt and adhere to them, suppliers are expected to exhibit flexibility and adjust to the buyer’s request.
2.2 Relational Behaviour
Theory on relational governance posits that interractions between parties can enable cooperative supplier behaviour, that complements contractual agreements (Ivens & Pardo, 2007; Zheng et al., 2008). There is no clear definition of what consists the relational behaviour in BSRs, as literature has tried to only classify the specific behavioural outcomes (Ivens & Pardo, 2007; Leuthesser & Kohli, 1995). As such, this study defines relational behaviour as the behaviour a supplier exhibits throughout the relationship and that consists of several constructs, namely norms(Ivens, 2004; Ivens & Pardo, 2007; Leuthesser & Kohli, 1995). Multiple factors can influence the norms that underly the supplier’s behaviour, among them, the information obtained by the buyer, the frequency of interaction or the buyer’s reputation and trustworthiness (Ivens, 2002; Ivens & Pardo, 2007; Leuthesser & Kohli, 1995). Relational behaviour though is based on social interactions that stimulate the development of norms at the beginning of the relationship (Ivens & Pardo, 2007; Zheng et al., 2008; Dwyer, Schurr, & Oh, 1987). Discussion of CoC, given their nature and content, has the potential to influence or dictate such norms. Moreover, the development of norms at this stage acts as a buffer increasing the effectiveness of output monitoring and allowing for behaviour monitoring that limits opportunism (Heide, Wathne, & Rokkan, 2007).
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relational norms and standards of conduct, sets the rules for the future cooperation among parties (Dwyer et al., 1987). Such norms can relate to the parties’ performance, reliability and trustworthiness, and behaviour throughout the relationship (Broekhuis & Scholten, 2018; Kam & Lai, 2018; Stjernström & Bengtsson, 2004). Misalignment of these expectations can have negative effects in BSR (Broekhuis & Scholten, 2018). Ivens, (2002) offers the most consice presentation of relational norms. By reviewing the literature on relational exchange theory, he identified ten relational norms, that can influence the satisfaction and trust in the relationship(Ivens, 2002). This study will focus and elaborate on the two most-examined norms, namely flexibility and information exchange as identified by Ivens, (2002). Their operationalization is presented in Table 2 and they are elaborated in the following sections.
Table 2: Operationalization of Supplier’s Relational Behaviour
Variables Definition Dimensions Source
Flexibility
The supplier’s readiness and willingness to adapt to an actor’s demand for modifications on (contract) terms, in a flexible manner, in light of environmental changes. (Ivens & Pardo, 2007; Ivens, 2005; Noordewier, John, & Nevin, 1990; Broekhuis & Scholten, 2018).
Environment Uncertainty Noordewier et al., (1990)
Adjustment to required modifications/ (contract) terms
Ivens, (2005),
Broekhuis & Scholten, (2018)
Information Exchange
The eagerness and willingness of a supplier to proactively share important and usefull information with its partner (Ivens & Pardo, 2007; Nyaga et al., 2010)
Frequency Spekman, Salmond, & Lambe, (1997)
Information Quality Noordewier et al., (1990)
Flexibility
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of this study, such issues can be changes in the offering or its (production) specifications,. The dimension of adapting to required modifications refers to the eagerness and willingness of a party to adjust to modifications such as the processes used or procedures to be followed, as put forth by the buyer (Ivens, 2005).
Information Exchange
Information exchange is defined as the eagerness and willingness of a supplier to proactively share important information with its partner (Ivens & Pardo, 2007; Nyaga et al., 2010). This can take many forms, especialy in the contract management stage (Nyaga et al., 2010; Spekman et al., 1997), but in the context of this study, we consider information such as documentation and product specifications, proprietary insights into the supplier’s processes and ways of working and open communication in interractions about goals or problems, frequently. Based on buyer’s CoC, suppliers are expected to be transparent and provide accurate information on their ways of working. Furthermore, information quality is important as exchange of confidential information signals to the recipient that a party is trustworthy, thus enabling the development of collaboration and commitment (Noordewier et al., 1990; Nyaga et al., 2010).
2.3 Conceptual Model
Prescriptions for the supplier’s behavioural norms are found in CoC texts. Beyond references to management practices and (inter)national laws, CoC are characterized by underlying values and norms such as honesty and justice. All these elements, comprising the content of CoC, introduced in the pre-contractual stage, signal the buyer’s principles and way of working and represent its expectations regarding the supplier’s behaviour and business principles. Moreover, the use of strict language is expected to stimulate more flexibility and information exchange. Similarly, inclusion of social and generic topics is expected to set the basis for shared values and to limit the supplier’s flexibility in terms of production methods and processes. Nevertheless, no study attempted to examine the influence of CoC on supplier’s relational behaviour. More specifically, no studies have examined how CoC content affects the relational behaviour norms in BSRs. Such a study is needed in order to obtain a better understanding of what CoC elements influence the supplier’s behaviour towards the actual relationship, rather on just specific issues (e.g. adherence or not to labor law). Consequently, this study will examine the following research question: “How does the buyer’s CoC influence
the supplier’s relational behaviour?”. The conceptual model is presented in Figure 1, with the
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relational behaviour is operationalized as the underlying norms that constitute it, namely
flexibility and information exchange.
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3. Method
3.1 Research Design/ Method
Given the developing stage of the literature and the variation in CoC and BSRs, an exploratory research method within the manufacturing industry is considered fitting (Eisenhardt, 1989). More specifically, since the aim of the study is to gather insights about the supplier’s behaviour, exploratory interviews are used, as this method enables the interviewee to share descriptions of the perceived events, and allows for their interpretation by the researcher (Dicicco-Bloom & Crabtree, 2006). Moreover, this method was selected as it allows for gathering insights from experienced practitioners in order to develop an initial understanding of the complex topics that are CoC use and relational behaviour (Dicicco-Bloom & Crabtree, 2006; Yin, 1981). The unit of analysis is ‘a supplier’, given that the study examines how CoC influence supplier’s relational behaviour.
3.2 Research Context
Since this study examines the relational behaviour of suppliers, it focuses on supplying companies that are involved in B2B sales in the manufacturing and FMCG industries. In order to examine CoC influence on supplier’s behaviour, the selected interviewees represent companies that pursue BSRs with buyers that use CoC in their purchasing process. The manufacturing and FMCG industries were specifically preferred due to their highly regulated nature, especially in EU (European Commission, 2019; Ilzkovitz, Dierx, & Sousa, 2008; Triebswetter & Hitchens, 2005). In addition, dependence on suppliers in this sector is high, and it is assumed that long-term relationships will be pursued and higher information exchange might be required due to the nature of the products. Lastly, companies of different sizes (small, medium, large MNCs) and specialized on different products (safety equipment, automotive, chemicals, machinery, food) were selected, in order to obtain a complete picture of the phenomenon and cover different viewpoints. It was the author’s expectation that BSRs with different types of entities might provide different insights, given that for example, public agencies are under higher scrutiny to conduct their operations with higher transparency (European Union, 2019) than private companies.
3.3 Interviewee Selection
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that are in contact with the customer when a sale is made, were selected. More specifically, interviewees involved in the technical aspects of the sale (e.g. Sales Engineer) or the more commercial side (e.g. Key account manager, Sales manager) were chosen, in order to cover all aspects of a supplier, as in each company, titles and structure of the sales department might differ (Dicicco-Bloom & Crabtree, 2006). In total, 11 interviews were conducted before theoretical saturation was reached, corresponding to the selected interviewees presented in
Table 3, representing 8 different companies from three different countries (Netherlands,
Germany and Greece).
Table 3: Overview of Interviewees
3.4 Data Collection
Primary Data
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to enable the use of probing and clarifying (sub)questions in order to investigate topic-related themes that emerged during the interview (Eisenhardt, 1989; Stanczyk et al., 2015; Dicicco-Bloom & Crabtree, 2006). Each interviewee was asked to provide information about their role and background, in order to get context information about their role in a sale. Next, they were asked to recall a sale, from the first contact up until the contract signing. At this point, more in-depth questions were asked, regarding the role of the CoC in the sale and aspects it influenced. Moreover, probing follow-up questions were used, to ensure all topics were covered (see
Appendix C). In order to enable the interviewees to express freely, the interviews were
conducted in their native language (German, Dutch, Greek, English) and then translated and transcribed in English right after (Eisenhardt, 1989), while assigning pseudonyms to each interviewee to ensure anonymity. Furthermore, the interviewees were asked to approve data recording, as a way of increasing data reliability. Only one interviewee denied recording, in which case extensive minutes and notes were held. After being transcribed in English, the interviews were sent back to the interviewees, in order to validate them or provide comments and corrections, thus avoiding misinterpretations (see Table 5). The transcriptions enabled coding the data and pattern identification among the CoC and the supplier’s behaviour.
Secondary Data
In addition, secondary data were examined. Namely, the supplier’s website in its entirety was used in order to identify the company’s policies and vision. In addition, where applicable, the supplying company’s annual report and CoC were examined, in order to allow for triangulation of the primary data. For companies that a certification was requested from them (ISO, REACH, UTZ, Fairtrade), the respective websites and requirements were examined as well.
Table 4: Overview of Secondary data used
Company Website Document Page Number
1 Yes Mission statement 2
Product Catalogue 84
2 Yes N/A N/A
3 Yes Sustainability report 15
Code of Conduct 6
4 Yes
Company’s Corporate Profile
Corporate Philosophy and Brand Statement 8
Company Integrated Report 123
Modern Slavery & Human Trafficking Statement 14
5 Yes Vision & Strategy 10
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Sustainability Report 25
6 Yes Company Philosophy 1
Quality Management Declaration 2
7 Yes
Annual Review 69
Creating Shared Value Report 60
Corporate Business Principles 18
8 Yes
Our Values 2
Our Quality Process 1
Annual and Sustainable Development Report 23
These two sources of data, along with meeting minutes, observations of the researchers and notes, ensured triangulation of data collection and increased the validity of the research (see
Table 5) (Eisenhardt, 1989).
Table 5: Validity and Reliability (Yin, 2009)
Research Phase
Criterion Research Design Data Collection Data Analysis Construct
Validity
• Development of interview questions based on concepts established in literature
• Use of multiple sources of data: primary (interviews) and secondary (websites, annual reports)
• Interviewees reviewed and approved the collected primary data
• Triangulation of collected data by use of material published on company website
Internal
Validity -
• Interviews with multiple interviewees • Pattern matching • Comparison of different order codes External Validity • Interviewing of multiple
informants, for comparison - -
Reliability • Development of interview protocol and content validation by
informants (interview transcripts) • Development of interview
database
• Development of interview database
• Interview transcriptions • Validation of interview protocol
by the interviewees
-
3.5 Data Analysis
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research question were reduced to quotes (first-order codes) (Yin, 2011). Next, the data were analyzed in parallel, from three different perspectives: first relating to CoC content, secondly to relational behaviour norms and lastly themes emerged in an interpretive way, based on the antecedent/mechanism occurring between CoC and norms. For a more comprehensive overview of the process, please see Figure 2.
Figure 2 : Overview of Coding Process & Steps
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4. Findings
Aiming to understand how buyers’ CoC influence the suppliers’ relational behaviour during the pre-contractual stage of the relationship, 11 exploratory interviews were conducted. Analysis of the data suggests that the content of CoC, namely the subjects they (do not) touch upon, the language used and the values that underlie the text, represent elements that act to some degree as motivators of the suppliers’ exhibited flexibility and information exchange. A main finding of this study is that it is not the content as phrased or described literally in the CoC that motivates the suppliers’ flexibility, but rather the content’s (legal or contractual) basis and origin and the values that underlie the provisions included, as also reflected in the language used. The length of CoC, was not found to influence any of the two variables, and was thus excluded (for an overview of the length of CoC for each interviewee, see Appendix D).
More specifically, Legal obligations, such as compliance to (inter)national laws, requirements set by a certification-issuing body or simply legal commitments to parties outside the relationship (e.g. other customers), motivated flexibility and to a lesser extent information exchange. Regarding flexibility, these obligations were invoked by the CoC content, as the provisions included, have their basis on such legal texts (e.g. labour laws and human rights or anti-corruption provisions). A similar effect occurs when references to certification standards (e.g. ISO, Fair trade, UTZ) are made. In such cases, the supplier’s flexibility was limited, within the boundaries of the law/certification. Regarding information exchange, inclusion of Generic subjects, which are associated more with compliance to anti-corruption and anti-trust (inter)national laws, appears to limit information exchange and/or set guidelines on how to exchange information. For both variables, restrictions/limitations were evident when strict phrasing was used in the CoC. Lastly, in one instance [F], the underlying values of reliability and integrity gave way for a supplier’s legal obligations to emerge, when probed by a client to share confidential information.
Alignment of Values represents another significant mechanism that relates the two variables to
one another, as often it contributed to creating a common understanding between the parties. Regarding flexibility, notwithstanding the subject mentioned (for a detailed account of these,
see Appendix E), values underlying these provisions, such as honesty, transparency, respect,
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a transparent, honest and respectful manner, even when related provisions on means of communication were absent from the CoC.
The Tone of language used, set some directions for flexibility and information exchange, as it signalled to the supplier the severity and importance of each provision. All but one informant [G], reported that the provisions were strictly formulated, prohibiting any alteration. For informant [G], the provisions were vaguely formulated, acting as a “moral compass”. As a result, the language used appeared to either dictate or cultivate the flexibility. References to Environment subject were more strictly formulated, requiring the flexibility of the supplier and exchange of valuable information. As such, the language used acted as a complement to other motivators (laws, values), enhancing their effect.
Lack of explicit definition represents the motivator for two information exchange outcomes,
namely, bluffing and communication approach. While CoC often refer to honesty and transparency, there seems to be no explicit urge to refrain from bluffing. Moreover, the absence of provisions on the communication means to use, led to the parties following their own norms, which often were shared, and adapting their approach to the customer.
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4.1 Legal Obligations
References to issues governed by (inter)national law or certifications that are awarded and monitored by the issuing organization, consist one of the main mechanisms that motivates flexibility and information exchange. In this section, the ways that flexibility and information exchange manifested will be presented, along with the mechanisms that enabled that. Tables
15 and 16(p. 27 & 29), display the various forms each relational behaviour norm exhibited,
along with the specific mechanism that motivated it and the link to CoC. Flexibility
All suppliers exhibited flexibility in adhering to the CoC requirements of their customer. In each case, the different subjects with a legal basis included in the CoC, motivated another aspect of flexibility, on adapting to procedures, to environmental uncertainty issues (e.g. product specifications) or simply limiting it. As mentioned, inclusion of issues that are based on (inter)national laws or certifications, often constrained the flexibility within these provisions: “A part was thus fair trade, this is a certified coffee that works with a minimum
price. Because these minimum prices sometimes exceed market prices, customers are hardly willing to pay this. For these products, we can only buy from specific suppliers.” [D]. Of
course, invoking legal requirements acted as a means of motivating law-abiding behaviour, as that was the desired goal: “Compliance with statutory minimum wages. Prosecution of
applicable law. No money laundering. Compliance with agreed regulations throughout the supply chain. Compliance with social policies. Social system for employees. The terms are deposited in writing, for example in general terms and conditions, and are mostly also available online on the website of the dealer.”[C]. Certifications such as UTZ and Fairtrade
covering not only production standards, but a broader spectrum of social, environmental and economic sustainability provisions, made flexibility outside of their provisions extremely difficult due to monitoring by the supervising bodies. Combined with the social pressure for more sustainable production and care for the societies, such certifications limit (for the better) the flexibility.
Some suppliers [A, B, G] had to be flexible and adapt to the sales procedure as it was set out by the customer. Thus, part of this process was signing the CoC, despite it not being common for the supplier, out of respect for the customer and to complete the sale: “I do remember that
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sustainability and environmental and CoC issues, so they require all that. But purely the first time, to start business with them [...]” [G]. More often, suppliers were willing to customize
the overall offering, as that was within their capabilities and was also based on requirements aiming to satisfy environmental policies: “For example, child labour prohibition, delivery
restrictions [...] there was also the restriction that only trucks with certain CO² emissions could be used and there was a requirement for a so-called sustainability catalogue, which had to be completed.” [I] or specifications based on ISO standards: “So we had to have some kind of specific certifications, that are accepted by the local government” [B].
Lastly, the language used signalled to the supplier how serious and important each provision was. In case a certification was requested, these provisions were stricter: “[…] This customer
also bought organic. This certification is even more stringent, I cannot sell to a customer who does not also have this certification, who also has to do an audit. For organic coffee I have to keep a good administration, because I can also only sell it as organic coffee, not as conventional coffee, because that is a crime. In addition, everyone in the supply chain must have a certification, so also the warehouse [...]” [E].
Overall, while flexibility was often limited within specific boundaries, when subjects with legal basis were invoked, this limitation was for the better as it prevented to some extent the suppliers from acting illegally or in a harmful manner. Legal obligations were the main mechanism, influencing almost all aspects of flexibility (except (contract) terms) as can be seen in Table
12. This is assumed to be due to the fact that (contract) terms generally follow the letter of the
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28 Information Exchange
While all suppliers were willing to share usefull information proactively, similarly to flexibility, references to subjects based on legal requirements (e.g. anti-trust law), restricted that. The following quotes demonstrate such examples, where cartel law, whose compliance to was explicitly mentioned in the CoC, limited the quality of information the two parties could exchange: “Data sharing needs to be improved, but legal boundaries and competition between
retailers restrict availability and thus the willingness to share information” [C] and “Yes, [the CoC influences the negotiations] from the beginning, because there are certain rules. Within those rules we are not allowed to communicate, even though the actual need existed in the course of the customer transition. But we just cannot do that and we have clearly defined that from the beginning.” [J]. Furthermore, in one case, that reference to legal requirements,
determined partly the means of communication they used with their customer: “Especially
personally and not by mail. Confirmations of the conversation must of course be made by e-mail, but always adjusted so that it moves in cartel law. Otherwise everything personally and face-to-face.” [J]. The language used when referring to such legal issues is another factor that
restricts information exchange: “It all depends. We have absolutely discussed cartel matters,
since the law is also relatively non-negotiable. That is not allowed then.” [J]. In this case, it
was not the exact strict phrasing in the CoC, but rather the strict legal obligation to follow the letter of the law that stems from the supplier’s obligations as well.
All in all, similarly to flexibility, when CoC invoke subjects which are defined and regulated by government authorities or independent bodies (for certifications), the quality of the information exchanged is restricted and certain guidelines need to be followed. This is often the case with anti-trust laws, in order to safeguard fair competition in the market.
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Table 15: Overview of findings – Exhibited Information Exchange
4.2 Alignment of Values
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shared by both parties, as the supplier’s CoC and internal policies revealed, making this a possible reason why all informants had successfully built a common understanding.
Flexibility
As mentioned above, values such as honesty, transparency, respect and fairness influenced flexibility in two ways: first, limiting unethical or illegal behaviour and secondly by urging the parties to behave according to them. Such values are found in all three subjects of CoC. This was prevalent for informant [G], as their customer’s CoC was did not use strict language, but nevertheless inspired these values and limited the flexibility within the letter of the relevant law: “Ethical transactions […] respecting human rights, providing good working conditions
and paying fair wages, and caring for the environment are important elements of these guidelines.” [G]. Similarly to legal obligations, the respect for the customer and will to finalize
the sale and build a collaborative relationship urged supplier A to adapt to the customer’s sale process, as it was determined by their customer and national laws: “[…] most of the time they
are in some countries that have their laws, so they actually follow these always, things that can be present in the CoC. So, actually this is something like a formality, if somebody sends you a piece of paper, you just sign it, because you know you should now do that.” [A]. Lastly, on
several occasions [C, D, E, G,K] suppliers adjusted the overall offering to the customer’s requirements, motivated by values such as honesty, respect and collaboration: “What you
normally do is to discuss the needs of the buyer; what do you need, what are your goals. Based on those needs, we cover both technical and non-technical requirements” [G]. Additionally,
underlying values not specific to a subject such as honesty, transparency, respect and collaboration, were shared among the parties and drove the flexibility on the overall offering:
“Customer satisfaction is our top priority, and we have created a customer-centric organization to achieve it.” [K]
Information exchange
Information exchange is perhaps the variable that the alignment of values influenced the most. Declarations of the buyer’s will to pursue their business relationships with honesty, transparency and respect, shared by the suppliers, made this alignment possible. The outcome was exchange of valuable information in a timely manner as informant [F] describes, when requested to provide back a list of requirements that they comply with: “[…] I get this list, I
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expect something coming out of the blue. But you still need to have that box checked.” [F].
Often, suppliers were willing to share proprietary information to exhibit their integrity, when such limitations were not defined by law, as supplier [I] explains: “We also use our customers
as a reference when we are talking about new sales. For this particular project, we gave them references of other customers globally, which they could call to talk to them, or to the users of such equipment. We are open for this. Also, from this perspective it is another reason that you treat your customers well and that there is a good relationship. So, the personal relationship is always very important.” [I]. The language used, appeared to influence only informant [G],
where CoC were implicit, but their communication approach adapted to the customer due to shared values of respect and collaboration: “[...] when you meet customers what you see is that
your team is inherently actually willing to do the best for a company. And also. willing to understand the needs of that other person. For me that is much more relevant in the way we do business with customers, that willingness and the ethical standards over here, so if you are not behaving ethical, you cannot be working here. So that is why I do not see the CoC as relevant, because I think there is some kind of filtering already, they are already doing that.” [G].
Moreover, the overall underlying values already mentioned, appeared to influence the information quality in most occasions [B, C, E, F, I, J, K]. The following quotes showcase this: “Early communication […] also applies to us, for example, if a product is no longer produced,
we inform the customer as early as possible that he can no longer obtain this particular product.” [C] and “No, if you are not honest with the customer, if you don't manage the expectations of the customer, you will lose your customers.” [F]. While no guideline was
included on sharing information proactive or timely or by certain means, it was considered a standard by all informants, partly due to their own values as well, of providing the best to their customers, to exchange information with multiple means: “So, every two or three days I was
calling my customer to ask how he is approaching the government state, if he needs any other documentation from our side that proves that the quality of the product is okay. So, yes I tried to be as close as possible to him” [B].Lastly, adjustment of communication approach to the
customer, was motivated by underlying values as well, especially when dealing with customers from other countries: “It is very important to mention also that the policy of my company is
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4.3 Tone of Language used
The tone of the language used in the CoC, though sometimes less strict [G] and others extremely strict [A, B, F, K, H], influenced the exhibited flexibility and information exchange, to a lesser extent. As already explained, the language used acted as a signal for what the customer considered important, which was the case for flexibility related to environmental uncertainty, where processes and specifications were discussed.
Flexibility
As already presented, the language used by informant [K]’s customer, was more vague, covering social subjects and serving as a “moral compass” and guideline, without strictly defining or urging behaviours. As such, this limited the supplier’s flexibility only in the sense that it could not go against company policy, which was already aligned with the guidelines mentioned. In essence, the language used did not urge the supplier to stick to the relevant laws, but instead appealed to morals and values that touched upon these topics such as ethical behaviour: “I thought it stated like: this is the way we would like to work. It was not really
black and white. I am not normally reading things that are so black and white, unless it is a legal thing […] I thought it was more; this is how the company wants to be, the moral standards things like that.” [G]. On instances when environment subjects were mentioned, such as
specific supplier requirements, the language used to phrase them clearly indicated that they could not be adjusted/altered: “The challenge for us was to be 100% within the project
objectives. It was a difficult technical project so we had to find some technical solutions which were a bit out of the box for our company’s products, so we had to find some local suppliers for that.” [H].
The generally strict language used on several occasions was what signalled the seriousness of the provisions. This motivated all aspects of flexibility to manifest, as the examples show: “I
have never signed something like that before [CoC]. But he made me understand that I did not have another option to go with another company, for this same project. It was like a tender[...]” [B] (sales procedure), “I have to adapt to their requirements and that thing is what I looked up.” [F] (not contradictory to company policy), “I believe this is a one-way relationship. The customer clearly stated what they wanted and if we could not provide such a solution, they would not have given us the project. So, we were obliged, we had to find a way to give them what they wanted in order to get the project. […] but the client stated the rules.” [H] (product
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to skip something even a single term [...] surely, they wanted every term to be agreed and implemented.” [K] (majority of contractual terms).
Of course, dependency to the customer could be another factor that motivated such flexibility. The fact, though, that several suppliers had to adapt or set limits to that (e.g. their internal policy), demonstrates that despite the dependency there are certain ethical limits (laws, internal policies and values) that cannot be crossed in the name of profit.
Information exchange
The tone of the language did not appear to influence information exchange to the same extent as flexibility. Namely, when environment subjects were included in the CoC, the supplier was willing to provide proprietary information about their processes and methods, by allowing the buyer to audit them: “We are like, here are our plants, we open the doors, walk them around,
they can ask, look at it, touch it, talk to people that gains trust. But it takes time.” [F]. Auditing
is a common practice in industry, and often a final step before a contract is finalized. The fact that often besides the related certifications, customers need to audit the supplier is a signal of the importance of such provisions to the client.
As informant [I] describes, the strict language used in the text, obliging the supplier to provide proof of compliance to the provisions is another way that buyers actively try to ensure CoC adherence: “[…] they are strict. In case they request this, then they require copies of the
corresponding certification. In this particular project it is not like that.” [I].
4.4 Lack of Explicit Definition
This mechanism appeared to influence only the aspect of information exchange, and not at all the flexibility. A possible explanation is that issues that required flexibility were clearly defined and included in the CoC. For information exchange on the other hand, the lack of inclusion of guidelines covering issues such as communication approach, means and frequency, left them to the judgement and of the supplier. As such, when possible suppliers spoke in the local language of the customer to enable the communication: “In this sale, some luck was that I
speak Russian. He speaks Russian and Azeri, so for him it was much easier to talk in Russian to somebody because in English, he could only do so by email.” [A]. Similarly, the chosen
communication channel (phone, email, meetings), in light of no other indication, was chosen based on the needs of the project and the proximity of the parties: “It is critical to do
face-to-face, that is always the best. I think it is important to do that in an office, but also outside.” [G]. The frequency of communication followed the same logic, driven also by underlying
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every two or three days I was calling my customer to ask how he is approaching the government state, if he needs any other documentation from our side that proofs that the quality of the product is okay. So, yes, I tried to be as close as possible to him” [B].
One interesting finding was that despite CoC invoking values such as honesty and transparency, suppliers and in some instances buyers as well, proceeded to use bluffing during negotiations on price or delivery/production times. Though there was no explicit mention describing bluffing as a practice to avoid, it is violating these underlying values. The following examples clearly showcase that: “[...] so we were both not totally honest. He told a specific
deadline, and we never got this deadline, but after that he always managed to do some things to adjust it. So, I think that to be secure he told me a lie about the deadline. I think this is normally in business.” [B] and “Honesty is subjective. So, I know very well things, but I say and how far I can go. I will never say 100% of what I know because that gives all my cards. It's like poker. You have to share something, but not everything. I only share when I know that something is coming back. This is a game. So, we are like looking at each other until some of us, one of us is asked to say something.” [F].
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5. Discussion
This study set out to explore how the content of the buyer’s CoC influences the supplier’s relational behaviour, by focusing on the two most examined norms comprising it: flexibility and information exchange, as defined by (Ivens, 2004). The findings suggest that there exists an indirect relationship between the CoC and the supplier’s relational behaviour norms, via the values and laws that CoC provisions are based on. Findings suggest that Legal obligations influence flexibility to a higher degree than information exchange. This is done by setting out boundaries within which flexibility is expected and out of which flexibility could have legal repercussions. Similarly, the Tone of language used complemented the mechanisms and motivated the flexibility on all aspects, by signalling issues of importance to the buyer and complementing references to legal issues. Alignment of values and Lack of explicit definition are suggested as the main motivators of information exchange, as values of honesty, transparency, respect and collaboration were evident in the interactions of the parties. Moreover, the lack of explicitly defined communication means, allowed the supplier to adapt their approach to the customer and via frequent and respectful contact to build a common understanding. As a result, the following conceptual framework depicting this influence is proposed (see Figure 3)
Figure 3: Proposed conceptual framework based on results.
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behaviour norms, the role of CoC in BSRs, besides promoting sustainability and lastly to literature examining social contract and relational governance.
5.1 Use of Codes of Conduct and Supplier’s Relational behaviour
Despite CoC being a topic subject to examination by multiple streams of literature, in the context of BSRs, no study had examined the influence of buyer’s CoC on the supplier’s relational behaviour. More specifically, our study addresses a gap in literature: several examinations have been conducted on how internal CoC influence the behaviour of employees (Schwartz, 2001), but no study so far has attempted to explore this interaction in BSRs, in the context that we do and from a supplier’s perspective. As such, we extend this knowledge by making the following proposition:
P1: Buyer’s Codes of Conduct influence the supplier’s relational behaviour with regard to the norms of flexibility and information exchange by enabling alignment of values and encouraging compliance to (inter)national laws and contractual obligations.
Given the nature of their content, in essence principles, values and laws, which set the basis of expected behaviours, our findings provide support for the normative literature on CoC, which posits that they are formalizations of business values and practices, designed to guide behaviour (Bondy et al., 2004). Moreover, our findings are consistent with Bondy et al., (2004), who argue that CoC act as quasi legal documents, based on the fact that they invoke obligations which, if violated, consitute violation of (inter)national laws. Especially when used in BSRs, CoC act as more than self-regulation tools, as they aim to mitigate potential risks to the reputation of the buyer (Bondy et al., 2004) and create awareness to the supplier of (un)desired behaviours.
Moreover, we extend literature studying antecedents of relational behaviour norms. Alignment of values and establishment of shared goals is not a new notion(Ivens, 2002; Ivens & Pardo, 2007). The fact that CoC, by embedding these elements in their content, ca nplay a role in enabling such alignment, and can help build a common understanding is the contribution of this study.
5.2 Codes of Conduct & Social Contract development
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study contributes to literature examining social contracts, by positing that CoC as discussed during the social contract development stage, offer a basis and opportunity for parties to align their values and goals. More specifically we propose:
P2: CoC, discussed during the pre-contractual stage, enable the development of a social contract, by motivating norms of flexibility and information exchange, based on aligned/shared values.
Moreover, no other study has considered that CoC can have an impact in establishing a social contract among parties. As our findings show, when parties espouse similar values, prior to any interaction, then they develop a mutual perception of the social contract. This, in turn can increase the satisfaction with the relationship in the ex-post contract management stage and presumably lead to compliance to the CoC terms (Broekhuis & Scholten, 2018).
5.3 Codes of Conduct and Relational Governance
In line with relationship marketing, all informants highlighted the importance of building an interpersonal relationship with their customers (Dwyer et al., 1987). Dunfee, Smith, & Ross, (1999), noted the relevance of social contracts for relationship marketing, acknowledging that they are based on shared values and can lead to satisfactory outcomes when clear behavioural expectations are established in the form of norms. Our findings suggest that the underlying values existing in the CoC, when espoused by both parties (as was the case in our research), can provide and contribute in building a common understanding by inspiring confidence for the other party’s capabilities and trustworthiness. This is especially important for the implementation of CoC provisions, which, similar to contracts, takes place in the ex post contract management stage.
Moreover, our findings provide an alternative way of ensuring CoC compliance, extending the safeguards that Pedersen & Andersen, (2006) propose. They base the use of safeguards on the arguments that a)the supplier needs to have some level of dependency on the buyer in order to comply to the CoC, b) the buyer needs to convince the suppliers to act according to the provisions and b) that when CoC are implemented top-down, ensuring compliance of the supplier is difficult. We extend their notion of safeguards, by arguing that:
P3: Compliance to CoC does not need to be forced, but can be more successful when parties conduct their business based on the same or aligned values and principles.
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Moreover, our findings are in line with Lai et al., (2012), which argue that establishment of relational norms can help mitigate opportunism by acting as internal control mechanisms for illegal/unethical behaviour.
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6. Conclusion
This research set out to investigate how CoC used by buyers in BSRs influence the suppliers’ relational behaviour. By conducting 11 exploratory interviews with experienced professionals from the manufacturing industry, some interesting findings were established. CoC elements such as the subjects they (do not) touch upon, the language used and the values that underlie the text, act to a certain extent as motivators of the suppliers’ exhibited flexibility and information exchange. Additionally, it should be noted that it is not the content as phrased or described literally in the CoC that motivates the suppliers’ flexibility, but rather the content’s (legal or contractual) basis and origin and the values that underlie the provisions included, as also reflected in the language used.
The findings contribute to literature by addressing the gap that existed, as no other study has examined how CoC influence the supplier’s relational behaviour, and more importantly, during the pre-contractual stage. The theoretical contributions consist of establishing that CoC, due to the influence their content has on supplier’s relational behaviour, can have an important role in efforts to establish a social contract at early stages of BSRs. This cannot only improve compliance to CoC, but can also lead to more satisfaction in later stages of the relationship. Besides contributions to theory, our study can offer insights to practitioners. Currently, CoC are seen often as a formality during new sales, aimed to satisfy legal requirements set by state authorities to companies. As a result, sales and procurement executives, often do not recognize the value they can have. Besides serving as supplier requirements, they can also signal to parties that their counterpart stands by the same issues and espouses to similar values (e.g. sustainability, fairness, honesty, integrity). As such, they could act as a basis for them to build rapport with clients and suppliers, motivating their adherence and having a beneficial influence on reputation and risk mitigation.
6.1 Limitations of this study & Further Research
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consist part of supplier’s requirements before any cooperation begins, was one of the sources of confusion. Adding to that, while informants were asked about a specific sale, it proved difficult for them to focus on that and avoid generalizing their insights, which in turn limited the ability to produce more detailed findings about the context of each exhibited behaviour. Moreover, while the initial aim of this study was to also study the buyer’s CoC documents, confidentiality agreements did not make it possible for the informants to share such documents. As such, the data obtained related to CoC are based on the subjective characterisation of the interviewees. Consequently, the generalizability of this study’s findings is limited to the companies under examination, given the number of interviewees and the small amount of data that was provided through the interviews.
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