Coupling Labor Codes of Conduct and Supplier Labor Practices: The Role of Internal Structural Conditions

Abstract

Exploitive working conditions have spurred companies to pressure their suppliers to adopt labor codes of conduct and to conform their labor practices to the standards set forth in those codes. Yet little is known about whether organizational structures such as codes are associated with improvements in supplier labor practices, especially in organizations in which they compete with productivity-driving incentive structures. We investigate under what internal structural conditions suppliers’ labor practices are likely to become more tightly aligned—or coupled—with their formal commitments to labor codes of conduct. Using data on 3,276 suppliers in 55 countries, we find that in suppliers with high-powered efficiency structures (piece-rate pay), labor codes are internally buffered and thus less tightly coupled with labor practices, yet tighter coupling is more likely in suppliers with certain types of managerial structures (certified management system and unions). We also find important interactions between these organizational structures: managerial structures offset efficiency structures, and the presence of multiple managerial structures within a single supplier hastens improvement. Our focus on the internal structural dynamics of suppliers extends the existing decoupling literature and provides the first empirical investigation of internal buffering of multiple organizational structures. Furthermore, our findings suggest important strategic considerations for managers selecting supplier factories and provide key insights for the design of transnational sustainability governance regimes.