How subsidiary and supplier misbehavior lead to corporate social responsibility performance improvements in multinationals

Abstract

We study how misbehavior in a multinational’s value network, not only in subsidiaries but also in suppliers, affects its corporate social responsibility (CSR) performance. Combining the network perspective of multinationals with the risk management view of CSR, we argue that major misbehavior in subsidiaries and independent suppliers leads to CSR performance improvements. The reason is that in response to the misbehavior, the multinational not only addresses the specific problem with the misbehaving party but also refines network-wide practices to rebuild its reputation and social contract with stakeholders, leading to better CSR performance. Additionally, we argue that home-country CSR mandates enhance this relationship. The reason is that the regulatory mandates heighten the multinational’s sensitivity to the costs of value network partners’ misbehavior, strengthening its response. Analyses of 1262 multinationals from 35 home countries in 2008–2018 support these ideas. They also reveal that while major subsidiary misbehavior leads to higher internal CSR performance, major supplier misbehavior results in higher external CSR performance. These ideas and findings introduce and highlight how managers can use CSR as an ex-post strategic tool for addressing reputational damage caused by misbehavior in their global value networks, complementing the use of CSR as a source of competitive advantage.