Sustainability in multi‐tier supply chains: Understanding the double agency role of the first‐tier supplier

DOIhttp://doi.org/10.1016/j.jom.2015.11.001
Date01 January 2016
Published date01 January 2016
Sustainability in multi-tier supply chains: Understanding the double
agency role of the rst-tier supplier
Miriam M. Wilhelm
a
, Constantin Blome
b
,
*
, Vikram Bhakoo
c
, Antony Paulraj
d
a
University of Groningen, Faculty of Economics and Business, Global Economics &Management, Nettelbosje 2, 9747 AE Groningen, The Netherlands
b
University of Sussex, School of Business, Management and Economics, Falmer, Brighton BN1 9SL, UK
c
The University of Melbourne Faculty of Business &Economics, Victoria 3010, Australia
d
The University of Manchester, Alliance Manchester Business School, Booth Street West, Manchester, M15 6PB, UK
article info
Article history:
Received 17 August2011
Received in revised form
20 October 2015
Accepted 10 November 2015
Available online 18 December 2015
Accepted by: Dr. Daniel R Guide
Keywords:
Sustainable supply chain management
Multi-tier supply chains
Double-agency
Agency theory
abstract
In light of the growing complexity of globally dispe rsed, multi-tier supply chains, the involvement of
rst-tier suppliers has become instrumental in the quest for achieving sustainability compliance along
the supply chain. We describe this new responsibility as the double agency role. We employ agencyand
institutional theory arguments to explore the conditions under which rst -tier suppliers will act as
agents who fulll the lead rm's sustainability requirements (i.e., the primary agency role) and im ple-
ment these requirements in their suppliers' operations (i.e., the secondary agency role). The ndings
from three in-depth case studies embedded in different institutional contexts highlight the importance
for lead rms to incentivize each agency role separately and to reduce information asymmetries,
particularly at the second-tier level. In addition, our inductive analysis reveals several contingency fac-
tors that inuence the coupling of the secondary agency role of the rst-tier supplier. These factors
include resource availability at the rst-tier supplier's rm, the lead rm's focus on the triple-bottom-
line dimension (i.e., environmental or social), the lead rm's use of power, and the lead rm's internal
alignment of the sustainability and purchasing function. We integrate our ndings in a conceptual
framework that advances the research agenda on multi-tier sustainable supply chains , and we subse-
quently outline the practical implications of assigning the double agency role to rst tier suppliers.
©2015 Elsevier B.V. All rights reserved.
1. Introduction
This paper brings to the fore the critical and rather neglected
role of the rst-tier supplier as a bridge between the buying com-
pany and upstream suppliers in disseminating sustainability stan-
dards along multi-tier supply chains (Grimm et al., 2014). Typically,
the regulatory frameworks and guidelines for adhering to sus-
tainability standards originate from the buying company and the
institutional context within which the organization is embedded
(Tachizawa and Wong, 2014). Therefore, in its quest for a trans-
parent supply chain, the buying company would ideally like to
monitor all the relationships with upstream suppliers indepen-
dently. However, this is a complex and rather ambitious under-
taking, given that these suppliers are often globally dispersed, are
situated in remote locations, and may not have access to
collaborative technologies. These conditions make the buying
company lethargic in monitoring and nurturing the relationships
further upstream in the supply chain, culminating in devastating
consequences.
For instance, in 2007, Mattel had to recall toys that were coated
with toxic paint (Hora et al., 2011). Their source was traced to a
subcontractor of Mattel's rst-tier supplier. In 2011, the Brazilian
government listed 52 charges against Inditex, Zara's parent com-
pany, accusing it of sweatshop-like working conditions in the
subcontractor's facilities of Zara's main supplier, AHA. Although
Inditex argued that it could not be held responsible for AHA's un-
authorized subcontracting, the Brazilian authorities responded that
AHA was a logistical extension of its main client, Zara Brazil, and
that because (Zara's) raison d'^
etre is making clothes ( ) it follows
that it must know who is producing its garments(Burgen and
Phillips, 2011). These incidents are responsible for the chain lia-
bility effect gaining currency in academic discourse, whereby
nonadherence to sustainability standards across lower tiers in the
supply chain culminates in negative publicity for global brands
*Corresponding author.
E-mail address: c.blome@sussex.ac.uk (C. Blome).
Contents lists available at ScienceDirect
Journal of Operations Management
journal homepage: www.elsevier.com/locate/jom
http://dx.doi.org/10.1016/j.jom.2015.11.001
0272-6963/©2015 Elsevier B.V. All rights reserved.
Journal of Operations Management 41 (2016) 42e60
(Hartmann and Moeller, 2014).
It is estimated that the most serious environmental and social
breaches are caused by sub-suppliers rather than direct suppliers
(Plambeck, 2012). However, managing the sustainability of sub-
suppliers is extremely challenging, as lead rms have inadequate
information about their lower-tier suppliers (Choi and Hong, 2002)
and, subsequently, limited means to exert control over them.
Moreover, sub-suppliers are often small and medium-sized enter-
prises that are sheltered from the glare of the general public (Lee
et al., 2012) and are, thus, far less exposed to institutional pres-
sures. The aforementioned reasons indeed make a compelling
argument for rst-tier supplier's engagement with managing the
sustainability standards upstream in the supply chain (Ayuso et al.,
2013; Grimm et al., 2014). Little is known, however, about the
conditions under which the rst-tier supplier will actively pursue a
role as a disseminator to pass through(i.e. communicate, train,
and monitor) the sustainability standards of their customers to the
next tier.
The main aim of our study is, therefore, to discern the conditions
under which the rst-tier supplier acts as an agent toward fullling
the lead rm's sustainability requirements and implementing them
in their suppliers' operations. We refer to this situation as double
agency.This is a complex undertaking, as these rst-tier suppliers
operate in different contexts and are exposed to conicting trade-
offs that dictate efciency and legitimacy concurrently. It is this
delicate balance that intrigues us and may result in a multitude of
outcomes, including rst-tier suppliers' complete deance of the
lead rms' requirements; merely ceremonial compliance with the
requirements; or, in the best-case scenario, obedience and perfect
compliance with the lead rm's sustainability requirements
(Christmann and Taylor, 2006).
To answer this vexing question, we employ agency theory as our
overarching theoretical anchor. We complement this with institu-
tional theory arguments to provide a better understanding of how
to create transparency in the supply chain, focusing on the critical
role of the rst-tier supplier in a multi-tier supply chain. Although
multi-tier supply chains are better characterized as networks with
vertical and horizontal linkages among actors (Choi and Hong,
2002), we operationalize them as a three-tier supply chain. This
simplied operationalization enables us to gain a more in-depth
understanding of the double agency role while taking the institu-
tional context into account.
Our paper proceeds as follows. First, we establish the theoretical
background of our study based on the literature on sustainability
dissemination to suppliers and an agency perspective on sustain-
able supply chain management. Next, we discuss our methodology,
which is followed by a comprehensive within- and cross-case
analysis. This is followed by the development of a conceptual
framework that leads to future research avenues and concluding
remarks.
2. Theoretical background
2.1. The double agency role of the rst-tier supplier in sustainable
multi-tier supply chains
To be considered sustainable in the supply chain context, rms
have to perform well in all three dimensions of the triple bottom
line, focusing explicitly on social, environmental, and economic
issues (Elkington, 1997; Klassen and Vereecke, 2012). Even though
the triple bottom line has received criticism, including for the
operationalization and non-summative nature of its three di-
mensions (see MacDonald and Norman (2007) for an overview), we
use it as a guiding framework in our research because the concept is
widely accepted in practice and is seen as a vehicle to achieve true
sustainability in the long run (Wu and Pagell, 2011). As the
emphasis on a particular dimension of sustainability is also
contingent on the context (e.g., environmental concerns in the
automotive industry, as opposed to social concerns in the apparel
industry), this more holistic understanding of sustainability allows
us to pursue a much-needed comparison of rms across industries.
This is specically the case because environmental sustainability is,
in many instances, less context-dependent and easier to measure
than social sustainability. For example, carbon footprints have an
impact on the earth independent of where they are emitted.
However, working conditions combined with different expecta-
tions from stakeholders may vary signicantly, so that a 12-h work
shift might be illegal in one country but socially and legally
acceptable in another.
Rising external pressures to extend the triple bottom line to the
supply chain level have shifted the focus toward the rst-tier
supplier as the disseminator of these standards in the quest for
the creation and management of a sustainable multi-tier supply
chain (Ayuso et al., 2013;Grimm et al., 2014). The rst-tier supplier
as an agent for the buying company may make critical decisions
that may impact the sustainability considerations of the entire
supply network. Such decisions could include the selection and
deselection of suppliers and the alignment of processes according
to customersexpectations (Choi et al., 2001). To better understand
the important role of the rst-tier supplier within this domain, we
apply agency theory as our theoretical anchor.
Agency theory is concerned with problems that arise when one
partydthe principalddelegates work to another partydthe agent
(Eisenhardt, 1989; Jensen and Meckling, 1976). Central to agency
theory are specic assumptions that also guide our research. The
actions of agents are driven by self-interest and opportunism;
therefore, it is difcult or expensive for the principal to verify what
the agent is doing, which creates a risk for principals, particularly
when there is high information asymmetry in favor of agents and
goal conict among members (Eisenhardt,1988, 1989; Wright et al.,
2001; Zsidisin and Ellram, 2003).
Based on an extensive literature review by Fayeziet al. (2012) on
the use of agency theory in supply chain management and the
screening of additional representative studies that take the unit of
analysis beyond the dyad and/or specically addressed sustain-
ability, we found that scholars have not delved deeply into under-
standing the specic role of the rst-tier supplier in disseminating
sustainability standards. For example, Wiese and Toporowski
(2013) argue that the complexity of food supply chains implies
that lead rms need to rely extensively on their agents (i.e., the
direct suppliers) for controlling sub-suppliers. However, this study
is silent on the conditions under which the rst-tier supplier
actually accepts this responsibility and begins to manage sustain-
ability considerations autonomously in their upstream processes.
In a similar vein, Ciliberti et al. (2011) investigate how codes of
conduct can help to reduce the information asymmetry that exists
between principals and their agents. Although relations between
chain directors (as principals) and both directand indirect suppliers
(as agents) are considered, no systematic contrasts between the
management of these two types of relationships are drawn. Finally,
Tachizawa and Wong(2014) identify contingencies to explain how
and why rms engage in managing lower-tier suppliers in sus-
tainable supply chains, which also includes the possibility that this
responsibility is delegated to the rst-tier supplier. Although the
potential of agency theory is highlighted explicitly to better un-
derstand the delegated responsibility, the perspective that is taken
is still that of the lead rm and the question of when and how it will
delegate sustainability management upstream.
Typical agency theory constructs used in the literature are
adverse selection, moral hazard, information asymmetry, and
M.M. Wilhelm et al. / Journal of Operations Management 41 (2016) 42e60 43

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