When does Ethical Code Enforcement Matter in the Inter-Organizational Context? The Moderating Role of Switching Costs

Abstract

Drawing on signaling theory, we suggest that a supplier's enforcement of ethical codes sends signals about the supplier that affect a buyer's decision to continue their commitment to the supplier. We then draw on side-bet theory to hypothesize how switching costs influence the importance of a supplier's enforcement of ethical codes in predicting a buyer's continuance commitment to a supplier. We empirically test our model with data from 158 purchasing managers across three manufacturing industries. Results confirm the connection between ethical code enforcement and continuance commitment, but suggest that a supplier's enforcement of ethical codes matter less when switching suppliers is perceived as too costly.

An Updated Inquiry into the Study of Corporate Codes of Ethics: 2005–2016

“…Studies reporting specifically on effects in the supply chain show both positive and counteractive results, indicating that the effects of the CCE are conditioned by top management commitment (Withers and Ebrahimpour 2013), employee commitment (ibid) embeddedness (Kaptein 2011), scope and composition of ethics programs (Kaptein, 2015) and pressure from consumers (Koçer and Fransen 2009). Other mediating factors include switching costs (Colwell et al 2011) and monitoring to reduce information asymmetry (Ciliberti et al 2011). CCEs as a form of organizational regulation together with complementary government regulation is suggested as important for improved workers' rights and conditions (Egels-Zandén 2014).…”

“…In the same vein, drawing on signaling and bet-side theory, Colwell et al (2011) survey 158 purchasing managers from three Canadian manufacturing firms in order to find out how suppliers' code adoption influences buyers' continuation behavior. The results indicate that there is a positive relation between suppliers enforcing CCEs and buyers' commitment to continue sourcing.…”

The Respective Effects of Virtues and Inter-organizational Management Control Systems on Relationship Quality and Performance: Virtues Win

“…Because buyers and suppliers may have different perceptions of their business relationship (Ambrose et al, 2010), we controlled for the firm's status (0 = supplier, 1 = buyer). Then we took into account the buyer's and the supplier's dependence, in line with studies on the role of dependency in inter-organizational relationships (Colwell et al, 2011). These measures used a Likert scale ranging from 1 ("strongly disagree") to 10 ("strongly agree"): "It would be difficult to the firm concerned by this evaluation replacing us in similar conditions" and "It would be difficult for us replacing the firm concerned by this evaluation in similar conditions."…”

Ethics policies, perceived social responsibility, and positive work attitude

“…Ethics codes have been used to encouraging effect (Adams et al, 2001;Colwell et al, 2011;Eyun-Jung et al, 2012;McCabe et al, 1996;Schwartz, 2001;Singhapakdi and Vitell, 1991), but certain conditions might enhance the success of these programs. For example, the more tangible and intangible resources expended developing (Baker et al, 2006;Herndon et al, 2001;Hunt et al, 1989;Trevino et al, 1998), installing, implementing, communicating (Helin and Sandström, 2007;Kaptein, 2011b;Sims,1991;Stevens et al, 2005;Weaver et al, 1999b), and integrating (Weaver et al, 1999a(Weaver et al, , 1999b) a code of ethics into the organisation, the greater the likelihood that employees will respond favourably to work.…”