Cut Them Loose? Firms’ Response Strategies to Environmental Misconduct by Supplying Firms

Abstract

Firms are increasingly held accountable for their suppliers’ environmental misconduct and often face significant stakeholder pressure to respond or even end their affiliations with misbehaving suppliers. Despite the importance of the subject, we know little about antecedents to supplier exclusion. In this article, we build on the assumption of stakeholder expectations being a core mechanism—and adopt an expectancy-violation theory lens. Drawing also on complementary insights into signaling theory, we argue that the severity of the misconduct affects the decision to cut ties. Furthermore, we argue that the engagement in environmental partnerships of client firms as well as suppliers moderates this relationship. To test our hypotheses, we use a unique sample of 434 client firm–supplier dyads, including 27 focal firms pressured by Greenpeace to remove “dirty” palm oil suppliers, accused of illegal deforestation. The study’s findings provide contributions to several literature streams related to inter-organizational dynamics and environmental sustainability.