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

In response to media exposés and activist group pressure to eliminate exploitive working conditions, multinational companies have pushed their suppliers to adopt labor codes of conduct and improve their labor practices to meet the standards set forth in these codes. Yet little is known about the extent to which suppliers are improving their labor practices to conform to codes of conduct, especially in organizations in which legitimacy structures like codes compete with productivity-driving incentive structures. We theorize that the presence of particular internal structures will affect the extent to which suppliers’ labor practices will become more tightly aligned—or coupled—with their formal commitments to adhere to labor codes. Specifically, we theorize high-powered productivity incentives to be associated with less coupling, and being certified to management system standards and having workers’ unions to be associated with more coupling. We also argue that these efficiency and managerial structures will moderate each other’s relationship to coupling, and that certification and unions will each increase the other’s positive association with coupling. Using social audit data on 3,276 suppliers in 55 countries, we find evidence that supports our hypotheses. Our focus on the internal structural composition of suppliers extends the decoupling literature by theorizing and demonstrating conditions under which suppliers’ core organizational functions are likely to be buffered from change by legitimacy 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.